Under the new rules, such companies may invest up to 10 percent of the foreign exchange quotas approved by the State Administration of Foreign Exchange in shares of Chinese companies listed on the New York, London, Frankfurt, Tokyo, Singapore and Hong Kong stock exchanges, and may invest a maximum of five percent of their foreign exchange quota in a single share.
The regulations also identify structural deposits, mortgage-backed securities (MBS) and money market funds as part of the mature investment products that Chinese insurance firms may invest in. The 'detailed rules of the provisions on overseas use of foreign exchange capital of insurance firms' was formulated by CIRC in tandem with the State Administration of Foreign Exchange. China made public the provisions last year in a bid to lift bans on overseas investment of the foreign exchange capital of the country's insurance companies.
Foreign exchange capital acquired by the industry exceeds US$10 billion, and is derived mostly from the overseas public offerings of China Life Insurance Co., Ping An Insurance Co., and PICC Property and Casualty Co.Yang Chao, Chairman of China Life Insurance Co., says his company will start investing overseas very soon and is awaiting the approval of its application to invest in the overseas H-share market or shares of Chinese firms listed abroad. Experts comment that the rules were designed to help firms capitalize on overseas capital markets in order to maintain and increase the value of their assets and prevent financial losses due to possible fluctuations in the exchange rate of the Chinese currency.
With US$3.1 billion foreign exchange capital, China Life Insurance Co. carried 500 million yuan (US$61 million) in financial losses due to the appreciation of the Chinese currency in July. China scrapped the currency's US dollar peg when it announced the decision on July 21 to reform its currency exchange mechanism, thus enabling the exchange rate of its currency against the US dollar to float within a band of 0.3 percent. On August 10, Zhou Xiaochuan, the governor of China's central bank, the People's Bank of China (PBC), announced in Shanghai that the US dollar, euro, Japanese Yen and Republic of Korea's won would constitute the basket of currencies determining the value of the Mainland's currency.