Three financial market watchdogs yesterday jointly published a set of guidelines to clear the way for insurance companies investing in the domestic stock market.

The move, announced on the eve of resumption of stock market trading following Chinese New Year holidays, apparently aimed to help the ailing stock market, which hovered around six-year lows in the final sessions before the weeklong holiday.

The guidelines, jointly issued by the China Insurance Regulatory Commission (CIRC), the China Securities Regulatory Commission and the China Banking Regulatory Commission, specified technical details -- such as seats at bourses, assets custody and settlement -- for insurance companies' entry into the stock market.

The guidelines also apply to foreign insurance companies operating in China.

CIRC said in an announcement that issuance of the guidelines is a "substantial breakthrough" for insurance companies investing in shares.

"Insurance companies investing in the stock market will then enter the stage of practical operation," it said.

There are still many unanswered questions such as which insurers will be the first ones to be approved to trade stocks and when they will do so.

In October, financial authorities said they will allow insurance companies to put up to 5 per cent of their total assets into the stock market.

In theory, that could usher in funds worth 59.3 billion yuan (US$7.2 billion) into the stock markets in Shanghai and Shenzhen, worth 3.7 trillion yuan (US$445 billion) at the end of last year.

But no insurance company has bought any stocks so far since many technical issues were not solved.

The right to trade stocks will mean an important investment instrument for China's underwriters, which are garnering huge premiums but are also facing obligations to their customers expected to peak in years ahead.

Yesterday's move also represented a fresh attempt by the government to boost the sentiment at the stock market, which lost 840 billion yuan (US$100 billion) in market value in 2004. The benchmark Shanghai Composite Index shed 15 per cent in the same year.

Last month, financial authorities slashed the stamp tax rate on securities trading from 0.2 per cent to 0.1 per cent.

But investors cold-shouldered the tariff cut.

Market analysts said investors' confidence was weak because the underlying problem of the market -- non-tradable State and legal person shares -- is still unresolved.

In fact, tradable shares of China's stock market are worth less than one third of the total. The majority of the shares is in the hands of the listed firms' parent companies, almost all State-owned.

So smaller investors have no say in listed companies' decision-making process, which is believed to be a major reason for poor corporate governance of the listed companies.

The government began to try to unload non-tradable shares in 2001 but suspended the effort on fierce debate about the pricing system in the market.

(China Daily February 16, 2005)