The regulator urged China Life Insurance Co. and Ping An Insurance (Group) Co. to buy more corporate bonds and equity stakes in November to complement government plans to spend US$586 billion to spur growth in the world’s third-biggest economy. China’s mutual funds were barred from buying unsecured corporate debt by the securities watchdog in April on concern that the notes were too lightly traded.

“This would definitely be good news for the market,” said Qu Qing, a bond analyst at Shanghai-based Shenyin & Wanguo Securities Co. “The policy shift will also expand investment channels for insurance companies.”

Thirty-four companies have sold a combined 225 billion yuan ($33 billion) of two- to 10-year medium-term notes since April, Chinabond data show. Such notes are the major unsecured corporate debt available in China. The central bank started to allow local companies to sell such securities on the interbank market in April.

Yield advantage

Triple A-rated corporate notes due in three years yielded 2.89 percent Monday, according to Chinabond, the country’s biggest debt-clearing house. That compares with 1.57 percent for a similar-maturity Chinese government bond.

Companies may need until the end of the year to meet the qualifications to buy the notes, the official from the commission said.

Insurers should “improve utilization of insurance funds and support the nation’s economic construction,” the regulator said in the November 17 statement. “Insurers should act as a long-term institutional investor in the capital markets and help ensure market stability.”

A senior official at China Life, the nation’s largest insurer, confirmed that the CIRC is seeking opinions on the draft regulation. He declined to be named because of internal policies.

Source: Bloomberg