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$39 bln to flow into overseas market

More than 300 billion yuan ($39.5 billion) is ready to flow into the international market with China's insurance companies getting government approval to invest abroad.

The new rules that became effective yesterday raised Chinese insurers' overseas investment ceiling from 5% of their assets to 15%, said a China Insurance Regulatory Commission (CIRC) statement. The CIRC, Bank of China and the State Administration of Foreign Exchanges jointly issued the rules. At the end of 2006, the industry's total assets were valued at 2 trillion yuan ($263 billion).

The immediate beneficiary of the new rules may be Hong Kong. Mainland companies' shares traded in Hong Kong, or H shares, are likely to be “the main target” of insurers, said Central University of Finance and Economics professor Hao Yansu, who specializes in the insurance industry. Shenyin & Wanguo Securities Co analyst Yu Bin said: "Given the continuing revaluation of the renminbi, the overseas investment of most insurers is likely to target equities rather than bonds."

According to the rules, only insurance companies with a capital adequacy ratio of 10% or more can invest abroad. The products that they can invest in include bank deposits, commercial bills, bonds, monetary funds and stocks. But the CIRC statement has warned insurers to be “very careful” while investing in financial derivatives. Orient Securities Company analyst Wang Xiaogang said it's unlikely for the mainland stock market to get a jolt from the move because “some of the domestic capital has already flowed into Hong Kong and the general price gap between H shares and A shares in Shanghai and Shenzhen is narrowing”.

Insurers will cash in on the chance to expand their investment overseas, even though the domestic stock market is passing through its best phase in seven years. But again, overseas expansion is important for the diversification of their investment portfolios, he said. (