Guidelines for insurance companies investing in the banking sector have been issued by the China Insurance Regulatory Commission (CIRC), which is the industry's watchdog.  

A circular published on Monday authorizes the country's insurance firms and institutions to buy shares in China's unlisted commercial banks.

The opening of bank shares to these firms would assist in better distributing insurance funds and improving investment earnings, said a commission source who requested anonymity. 

According to the circular China's insurers may invest up to 3 percent of their total assets in unlisted commercial banks.

Insurance company investments in the banking sector have been divided into two categories: general investments where less than 5 percent of a bank's shares are held and major stakes of more than 5 percent. 

It emphasized that insurance firms that plan to make major investments shouldn't buy shares in more than two commercial banks. The total assets of China's insurance industry reached 1.7 trillion yuan (US$215.1 billion) at the end of June.

The government has expanded investment options by encouraging insurers to directly or indirectly invest in capital markets, securities products, real estate and venture capital and to purchase shares in commercial banks.

CIRC figures show that Chinese insurers are major investors in the country's stock market and hold as much as 49.9 billion yuan (US$6.3 billion) in stocks. These are mainly in commercial banks.

Wu Dingfu, CIRC chairman, said recently his body supports insurers investing in bank shares. "The CIRC is also ready to receive applications from banks to set up insurance firms," he said.

The financial regulations that took effect in China in 1995 originally banned banks from engaging in the insurance business and vice versa.

Under its agreement with the WTO it's expected that China will fully open its financial markets to foreign competitors by the end of 2006.

(Xinhua News Agency October 18, 2006)