AFTER CHINA LIFE'S dazzling IPO, it seems that investors cannot get enough of China's insurance companies. Its debt-ridden banks are another matter. Would the answer be to make its banks more like their insurance brethren, a path already trodden the world over?
While his global counterparts wound down for Christmas, China's banking regulatory chief, Liu Mingkang, appears to have been working overtime with a range of new banking legislation getting passed. The latest measures include an intriguing amendment to allow commercial banks to resume activity in non-banking areas, such as stock market investments and insurance, from February.
This news will be welcomed by the Big Four banks, which are all courting investors and stock market listings as soon as next year. It could help to bridge the current dichotomy in China's financial sector, where its banks are chastised for bad loans and bad business while investors can only see good times ahead for its insurers such as China Life Insurance. It seems strange that one is so good and the other so bad.
Banks and life insurers share a similar trait in that they are both experiencing rapid deposit and premium growth respectively. The difference is that when investors look at China Life's growth in annuity savings products, they read growing premium income and profits. In contrast, growth in China's bank deposits all too often translates into non-performing loans down the road.
China's current strict demarcation of banking, insurance and stock investing stems from the excesses of some spectacularly bad lending in the early 1990s. However, such good intentions to minimise risk have fallen victim to the law of unintended consequences. Too often the combination of a large build-up of deposits and limited investment offshoots means dispersal of loans - already prone to policy-driven or preferential lending - can be increasingly slipshod. The obvious priority is to instil a commercial lending culture in China's banks.
The regulator has moved to give banks greater flexibility in setting commercial lending rates from next year. This latest package of measures now seeks to diversify investment opportunities away from straight lending.