China warns against insurers' local government financing

World
Europe

Chinese insurance funds must serve the real economy and not be used to provide covert funding to local governments, said a deputy chairman of the insurance regulator on Saturday.

The China Insurance Regulatory Commission (CIRC) has banned local governments from illicitly starting new projects and building new debt through channels such as local government financing vehicles (LGFVs) or government investment funds in the name of attracting insurance companies to bypass borrowing limits.

"Insurance companies must not covertly provide financing for local governments, and should guide investment into serving the real economy to align with national strategy," said Chen Wenhui, a deputy chairman of CIRC.

The China Insurance Regulatory Commission in Beijing /VCG Photo

China is in the second year of a campaign to reduce financial risks, including a reining in insurers' sale of risky investment products and greater scrutiny of local government spending and debt.

The regulatory crackdown on what is seen as an excessive use of universal life products by some insurers has taken its toll, as evident from the 65 percent drop in net operating cash flow to 633 billion yuan (99.78 billion US dollars) in 2017.

A handful of insurance firms, which have issued higher-yielding products to raise funds to acquire stakes in publicly listed companies, have already been punished.

Chen Wenhui also said the so called "creative" way of using insurance funds to build up local government debt, i.e. private equity investment schemes, must also be banned.

4km

Source(s): Reuters