China’s insurance regulator said on Sept 18 it will intensify regulation of outbound and real estate investment, a move to prevent valuation risks abroad and guarantee the stability of the nation’s foreign exchange reserves.
“The China Insurance Regulatory Commission will always strengthen regulation of the use of insurance funds and govern irrational and outbound mergers and acquisitions,” said Guo Jing, deputy head of the commission’s finance and accounting department.
Guo said the commission will take measures such as intensifying information disclosure and monitoring the flow of funds to prevent outbound investments from growing excessively rapidly.
The commission will also enhance regulation of real estate investment, such as strictly forbidding insurance funds from investing in commercial residential buildings and organizing insurers to conduct self-inspection of real estate investments, said Guo.
Hao Yansu, director of the school of insurance at the Central University of Finance and Economics, said China’s authorities and industry experts are concerned about the valuation risks of outbound investment due to global political and economic uncertainties.
“If the overseas assets are not good ones, Chinese insurers will find it difficult to cash out and their outbound investments will occupy a share of the foreign exchange reserve,” said Hao.
“So CIRC’s move is to prevent related risks abroad and safeguard the stability of foreign exchange reserves.”
The State Council in August released a document stating that overseas investment in areas including real estate, hotels, cinemas, the entertainment industry, and sports clubs will be limited, while investment in some sectors such as gambling will be banned.
Hao said Chinese authorities are still encouraging companies to conduct outbound investment in industries such as high-tech which will benefit China’s economy.
In May, China’s insurance regulator released a statement on the risk inspection of insurance funds in equity, alternative, outbound and real estate investments.
The commission is also stepping up the pace of revising a regulation on insurance guarantee fund. For example, CIRC may implement an immediate liquidity arrangement system for insurers.
