Beijing could relax restrictions on insurers’ offshore investments

Recovery of foreign exchange reserves may lead to rollback of previous measures made to stop capital flight

Beijing could relax restrictions on insurers’ offshore investments

Insurance News

By Gabriel Olano

While insurers in China were hit hard by a massive regulatory crackdown this year, they can expect a more lenient environment for overseas investments next year.

Several insurers have been barred from selling certain high-yield products, while senior executives, most notably Anbang’s Wu Xiaohui and former chief insurance regulator Xiang Junbo, have been removed from office or detained as part of Beijing’s purge of the insurance industry to protect it from systemic risks and reduce capital flight.

In the past months, insurers have been targeted by restrictions aiming to curb their access to foreign investments. But following the stabilisation of China’s foreign exchange reserves after falling below US$3 trillion earlier this year, investment managers of top Chinese insurers have said that they plan to ramp up overseas investments in 2018.

“Regulators have signalled to insurers that they will relax restrictions on overseas investment next year,” a chief financial officer of a large Chinese insurance group told Financial Times. “We plan to increase allocation into alternative investments overseas, with a focus on healthcare and industrial assets.”

Discussions about the relaxation of policy are ongoing despite the probe of the China Banking Regulatory Commission into the systemic risks being opened by aggressive offshore dealmaking by companies such as Anbang.

China’s foreign reserves dropped by over US$1 trillion in August 2015, prompting authorities to tighten capital controls, including a provision that all foreign acquisitions worth more than US$10 billion must have government approval.

Since then China’s foreign reserves have recovered, breaching the US$3 trillion mark in May, leading to talks of loosening restrictions.

A survey of China’s large insurers conducted by Standard Life Investments revealed that interest in foreign investment is still high.

Around 64% of companies said that they plan to increase foreign investment allocations over the next three to five years. All of the respondents said that they plan on increasing investment in private equity and infrastructure both domestically and overseas.

Meanwhile, 33% wanted to cut back on investing in Chinese sovereign and corporate bonds in the near future.

“We see this trend because insurers are hoping [the State Administration of Foreign Exchange] will rescind the limitations on quotas for overseas investments,” David Peng, investment director and head of Asia at Standard Life Investments, told Financial Times.

Related stories:
Universal life insurance sales drop by almost 60%
Chinese regulator to punish illegal sales of Hong Kong insurance products
China rejects previous capital flight control approach

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