By Hu Yuanyuan (China Daily)
Updated: 2008-01-12 10:15

Chinese banks have received approval from the State Council to invest in insurance companies, sources said yesterday.

Three to four banks will be chosen to run the businesses on a pilot basis, Caijing Magazine quoted one of its sources as saying.

"But there is no exact stipulation as to how much of a stake a bank can take in an insurance company."

Also, the State Council does not currently allow banks to form a new insurance company.

Since 2006, a number of banks have submitted applications to financial regulators in order to own insurance companies.

"We submitted an application to the State Council late December," a regulatory commission source told China Daily.

"The (State Council's) approval is a significant move toward universal banking, paving the way for banks to set up their own insurance companies," said Wang Xiaogang, an analyst with Orient Securities, adding the move could strengthen the profitability of banks.

Compared with insurance companies, Chinese banks have more limited investment channels and they are not allowed to invest in the stock market directly.

"But they can still share in the harvest from a bullish stock market through their stakes in insurance companies and fund management companies," Wang said.

For the time being, a bank's stake in an insurer is not likely to have a big impact on the insurance market.

But once they are allowed to run their own insurance companies, competition in the market is expected to be more intense, Wang said.

Wan Feng, president of China Life, the country's largest life insurer, said competition will benefit the industry.