China reins in insurers’ local government financing

Move aims to cut down debt risk

China reins in insurers’ local government financing

Insurance News

By Paolo Taruc

As part of efforts to curtail debt risk, China’s finance authorities have introduced stricter rules on how insurers can provide financing to local governments.

According to a report from Reuters, the central government has ordered insurance companies to check the compliance of each investment related to local government debt, and to rectify any non-compliance and report the incident to regulators.

In a joint statement, the Ministry of Finance and the Insurance Regulatory Commission outlined their aim to stop local governments from illicitly starting new projects aimed at attracting insurance firms. 

A report by Caixin said the illicit funds from insurers don’t necessarily represent a large portion of the total amount, but are nevertheless “sizeable,” prompting action by the two central government offices.

Insurance funds that invest in innovative businesses cannot require local governments to guarantee the principal amount or investment returns, Caixin said.

According to Reuters’ analysis, outstanding local government debt in the country ballooned 7.5% year-on-year to RMB16.47trn at the end of 2017.

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