China approves insurers' overseas investment, buybacks

China gave approval for insurers to invest in overseas stock markets on Friday, a move analysts said could see the bulk of $1 billion in investment flow into Hong Kong, and said it would allow share buybacks. Chinese insurers, such as China Life Insurance Co and Ping An Insurance, have long been hamstrung by a lack of investment vehicles at home. The new rules allow them to more effectively chase higher returns and help meet long-term obligations by giving them access to overseas shares of Chinese companies, but still keeps the door to foreign stock investment shut.
In another market liberalisation, authorities said companies that had been listed for more than a year could buy back their shares in the Chinese stock market.
The move, meant to boost the flagging stock market, met with immediate results.
Handan Iron and Steel Co Ltd, a medium-sized steel maker, said it would repurchase up to 4 percent of its outstanding shares at a price of no more than 5.8 yuan ($0.70) each. China's key index has shed 14.3 percent so far this year, almost matching in five-and-a-half months a 15 percent slump over 2004, which made it the world's worst major performer, hit by a bulging IPO pipeline, credit curbs and corporate scandals.
That has led the government to take a slew of market-friendly steps, such as a temporary halving of personal income tax on dividends earned by individual investors, with limited success.
Allowing insurers to invest freely overseas is seen as a likely precursor to the much-anticipated Qualified Domestic Institutional Investor (QDII) scheme, which could spur hundreds of billions of dollars to flow onto overseas markets.
Insurers will be able to use a maximum of 10 percent of their foreign exchange capital to invest in overseas stocks, according to a statement from the insurance watchdog China Insurance Regulatory Commission.
Domestic insurers had combined foreign exchange reserves of around $10 billion at the end of 2004, state media has reported, meaning up to $1 billion could be tapped for overseas stock investments.
Their investment in a single company must not exceed five percent of the value of the firm's total shares, the regulator said.