China’s insurers encouraged to invest in manufacturing sector

Chinese authorities issued new guidance on Tuesday to encourage insurance capital to invest in the nation’s manufacturing sector in a renewed effort to ensure financing efforts supported the real economy.

However, more details on the preferential policies and the perceived benefits of investing in the segment might be needed to encourage insurers to make such investments, market watchers said.

Regulators have called for stable and low-cost funding from long-term insurance capital for the transformation and upgrading of manufacturers, according to a joint statement issued by the central bank, the top industry and information authority, and the banking, insurance and securities regulators.

The investment can be done through various means such as debt, equity and asset-backed schemes as long as they go through the proper safety and ROI assessment, said the statement posted on the central bank’s website on Tuesday.

Premier Li Keqiang promised to expand channels for insurance capital to support the real economy in the government work report delivered on March 5.

The watchdogs urged insurers to invest in merger and acquisition bonds, preferred stock and other innovative financial vehicles that focus on investment in manufacturing start-ups, the statement said.

“Broadly, it showed authorities’ firm determination to guide capital back to the real economy in light of concerns that the financial sector is expanding without pumping money into real economic activities,” said Jiang Li, deputy general manager of huize.com, an online insurance marketplace. “It showed a clear stance to encourage insurance funds to invest in manufacturing upgrading.”

However, it remains to be seen how insurers will embrace the guidance if there are no concrete follow-up measures, he said.

Hong Jinping, an insurance analyst at Hua Chuang Securities, said insurers are not that familiar with the manufacturing sector. “They need to assess the risks in such an investment and guidance alone might not be effective enough to encourage them,” she said.

The insurance regulator has implemented tighter scrutiny of risky investments in listed companies and aggressive sales of short-term universal life insurance.

“It could be a positive factor for listed insurers as it means more diversified, investable assets are available to insurers,” said Tian Dan, who works in the research department of SooChow Securities. “However, the impact might be limited as large insurers will still strictly assess risks associated with such investment and opt for only highly secured assets, such as those with some form of guarantee from large state-owned enterprises or government.”

At the end of 2016, outstanding insurance capital under investment rose by 19.8 per cent year on year to 13.4 trillion yuan (US$1.9 trillion), according to data from the China Insurance Regulatory Commission.

The regulators also encouraged insurers to offer more insurance products to strengthen risk protection for the manufacturing sector.