04 March 2008

FT: China Life seeks access to private equity

China’s biggest insurer, China Life, wants the government to allow insurance companies to invest in the country’s fledgling domestic private equity sector. Yang Chao, chairman, has submitted a proposal on the issue to the annual China People’s Political Consultative Conference in Beijing.

Beijing is establishing legal structures that would allow western-style private equity firms to set up renminbi-denominated funds. Several veteran Chinese bankers have established firms in anticipation of the legislation.

Banks and securities companies are meanwhile lobbying to set up their own private equity funds.

“The government is opening more channels for investment by insurers but changes will be made at a controlled pace and under the close scrutiny of regulators,” said Sally Yim, an analyst at Moody’s in Hong Kong.

“The regulator will likely only allow insurers to invest a small percentage of their assets” because of increased risks, she added, although in real terms the amounts could be “massive because of the size of the investment portfolios”.

Beijing has relaxed rules for insurers in the past two years, letting them move beyond domestic government bonds and bank deposits to an array of assets. Insurers can now invest up to 20 per cent of their assets in equities. China Life says high domestic share valuations are increasing the investment risks to insurers “on a daily basis”.

In its proposal, China Life said the long-term nature of private equity investments was ideal for life assurers that want to match their assets with liabilities.

It also said letting insurers make such investments would provide a pipeline of quality companies for the stock market.

PICC’s plan suggests laws be changed so insurers would not need to lobby regulators for approval for investments on a case-by-case basis.

The current system “restricts domestic players who wish to become bigger and stronger and means they can barely compete against international financial groups”, said Wu Yan, PICC president.

By Jamil Anderlini in Beijing

© Graham Bishop