The China Insurance Regulatory Commission (CIRC), the country's insurance regulator, has issued guidelines for insurance firms investing in the banking sector.

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

The opening of bank shares to insurance firms will help better distribute insurance funds and improve investment earnings, said a source with the commission, who asked to remain anonymous.

According to the circular, China's insurers may invest no more than 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 investment stakes of more than 5 percent of a bank's shares.

It emphasized that insurance firms which plan to make major investments should not buy shares in more than two commercial banks.

The total assets of China's insurance industry reached 1.7 trillion yuan (212.5 billion U.S. dollars) 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, holding as much as 49.9 billion yuan (6.3 billion U.S. dollars) in stocks, mainly in commercial banks.

Wu Dingfu, chairman of the China Insurance Regulatory Commission (CIRC), said recently that the CIRC 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, China is expected to fully open its financial markets to foreign competitors by the end of 2006.

(For more biz stories, please visit Industry Updates)