China will support insurance fund to invest projects that could boost the macro economy and regional economy, China Insurance Regulatory Commission (CIRC) said in the notice on matters concerning the investment of debt investment program in major projects, the Securities Daily reported. The document is the fifth one that the CIRC issued in the recent month to guide insurance fund to support the real economy.
In addition to the above document, the other four documents are the guidance on the insurance industry to support the development of the real economy, the notice on the investment of insurance fund in public-private partnership (PPP) projects, the guidance on the insurance to serve the construction of the Belt and Road initiative and the document on steadily promoting insurance fund to support innovation pilot of small financing business.
Analysts believe that the guidance on the insurance industry to support the development of the real economy is a principle elaboration of the statement “expand channels for insurance fund to support the real economy” which the State Council made in the government work report on March 5, 2017. This indicates that there will be series of specific measures to be introduced in the future. The notice on matters concerning the investment of debt investment program in major projects is a detailed supportive document for the guidance. It is conducive to dredge the channels and efficiency for insurance fund to enter the real economy to both increase the value of insurance fund and serve the development of the real economy.
In fact, the CIRC issued the notice on the investment of insurance fund in PPP projects on the next day after the introduction of the guidance on the insurance industry to support the development of the real economy. It supports insurance fund to invest eligible PPP projects by expanding investment channels, making innovations in investment method and improving regulatory standards.
Professor Zhu Junsheng with the Financial Research Institute, State Council Development Research Center said in an interview with the Securities Daily yesterday that theoretically, insurance fund matches well with PPP project’ requirements for capital. Insurance fund, especially life insurance fund, has a long term; while some PPP projects also have a long cycle and have a high requirement on the stability of funds. Therefore, there is a long room for cooperation between the two.
Analysts believe that the notice on the investment of insurance fund in PPP projects opens the channel for the combination of equity and debt, which will enrich channels for insurance fund to finance PPP projects to increase PPP project’ attractiveness for insurance fund. Infrastructure projects, with a long period of investment return, just match the duration of life insurance and pension insurance. It is expected that insurance fund will be highly enthusiastic to participate in such projects.
In addition, the notice on the investment of insurance fund in PPP projects also stipulates that the CIRC will give green lights to investment plans involved in major projects that are consistent with national development strategies, including the Belt and Road initiative, the integrated development of Beijing-Tianjin-Hebei region, the Yangtze River economic zone, poverty alleviation and Hebei Xiong'an New District. The industry expects that the approval for the financing of PPP projects in key fields will be greatly improved, and PPP projects will land at a faster pace.
However, Zhu Junsheng noted that insurance fund’s participation in PPP project is worthy of attention, but there are some problems. First is whether the project itself is attractive and has sufficient profit expectations. As when insurance fund makes investment, it should consider not only supporting the real economy but also preserving and increasing the value of the insurance fund. Therefore, whether the project can bring considerable benefits is the core of consideration. Secondly, after insurance fund invests in PPP projects, project management, including personnel reserves and management experience, will post a huge challenge for traditional insurance companies. Therefore, the insurance companies can only play a greater role in this field after they have appropriate conditions. “There may be more insurance companies participating in. But out of a comprehensive consideration, insurance fund’s participation in PPP project will be progressive.”
Professor Hao Yansu with Central University of Finance and Economics also told the Securities Daily that the public’s knowledge insurance fund’s participation in PPP project is still limited. Besides, there is a gap between the returns of insurance fund’s investment in PPP project and that of exiting projects.
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