China regulator warns of risks in insurance asset management products

China's insurance regulator has warned of risks in investment programs marketed by insurance asset management firms, an official newspaper reported on Friday, as concerns grow over the health of domestic debt markets and the broader impact on the economy.

The China Insurance Regulatory Commission (CIRC) has recently issued an internal notice warning of risks involving so-called insurance investment programs, off-balance debt schemes issued by asset management firms of insurance firms to raise money from insurers and other institutional investors to invest in industrial projects, the Shanghai Securities News said.

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Some issuers are not properly backed up by their parent firms, which are supposed to guarantee the payments if the programs face financial difficulties, among other problems, it said.

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"The CIRC is tightening supervision of the issuance of such products," it quoted the notice issued to insurers and insurance asset management companies as saying.

A run of disappointing data showing China's economy lost steam at the start of 2014, and the country's first domestic bond default and subsequent media reports of trouble at other companies have added to pressure in its financial markets.

Concern is growing that underlying weakness in China's debt markets could drag further on economic growth, especially the off-balance sheet debt that may be funding dicey projects. The People's Bank of China, the nation's central bank, has recently ratcheted up efforts to crackdown on the so-called shadow banking sector.

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With slowing growth in the world's second- largest economy hobbling China's equity market and its bond issuance market battered by the central bank's tight liquidity stance, insurance firms have increasingly tended to invest in insurance investment programs.

Last year, a total of 90 such programs were launched, raising a combined 287.76 billion yuan ($46 billion), with the value equaling to the total of all such programs launched in the previous seven years, the Shanghai Securities News said.

Stay skeptical and conservative on China: Pro
Stay skeptical and conservative on China: Pro

Separately, the National Development and Reform Commission (NDRC), China's top economic planner, said that a survey by its provincial offices found no payment risk of bonds issued under its approval, the official China Securities Journal said.

Bonds worth a total of 100 billion yuan under the NDRC management would mature this year and one-fifth of them had been redeemed, the China Securities Journal quoted the planner as saying at a meeting on Thursday.

"In line with a provincial survey, no risk to repay the remaining part has been found," the newspaper quoted the planner as telling participants at the meeting.

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Under the complex regulatory structure governing China's rapidly growing bond market, the NDRC approves applications from non-listed and non-financial firms to issue "corporate bonds" of one year and above.

The stock watchdog, the China Securities Regulatory Commission, has authority to approve listed firms to issue "company bonds" while the People's Bank of China manages the "financing bills" market, a platform used by pre-qualified institutions that can freely issue instruments with tenors mostly between one and seven years without further approval.