China’s insurers to help fill Belt and Road funding gap

Industry awash with cash could help solve the funding deficit for Asian infrastructure projects

China’s insurers to help fill Belt and Road funding gap

Insurance News

By Gabriel Olano

After they were dealt a major blow by the aborted boom in wealth management products, Chinese insurers will now be harnessed to close a potential funding gap in the nation’s ambitious Belt and Road economic initiative.

Beginning immediately, the application process for insurers wishing to fund infrastructure projects along the Belt and Road will be simplified, according to a statement issued by the China Insurance Regulatory Commission (CIRC).

The move is in response to a report by the Asian Development Bank that there could be a US$26 trillion funding gap by 2030 for infrastructure development in Asia. CIRC data shows that insurance premiums in China grew by almost one-third to US$232 billion in the first quarter of 2017, providing a potential source of funds for the projects.

The CIRC added that investments in water conservancy, energy, transportation, high technology, and advanced manufacturing from AAA-rated projects financiers can be exempted from payment of additional collateral or third-party guarantee. This makes the investment process more streamlined and more effective.

“The authorities are sending a clear signal for insurance to back the real economy, by offering lower thresholds in investments in major infrastructure,” Hong Jinping, an insurance analyst at Hua Chuang Securities, told the South China Morning Post.

However, the number one priority of insurers in investing is still earning returns exceeding bank rates. Infrastructure projects, especially in developing nations, can have long payback periods, making insurers wary.

“Insurers may be more propelled by foreseeable higher returns or preferential tax policies, rather than lower threshold,” Hong added.

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