China tightens rules on insurers' private equity investment schemes

BEIJING/SHANGHAI (Reuters) - China’s insurance regulator issued a notice on Friday banning insurers’ asset management arms from using private equity investment schemes as a channel to increase local government debts.

Such schemes must not offer fixed returns to investors, and must not be used as a passive investment channel designed to skirt regulation, China Insurance Regulatory Commission (CIRC) said on its website.

Beijing is taking steps this year to strengthen the regulation of local government debt as policymakers look to rein in massive debt and reduce financial risks.

The government is targeting public-private-partnership, or PPP, projects, which channel private money into infrastructure such as bridges and toll ways in the form of equity. Some PPP projects, however, are used by local governments to borrow money.

The CIRC said on Friday the new rules are aimed at preventing insurers from turning private equity investment into lending, which raises financing costs in the real economy.

The regulator also said schemes should not be used to increase local governments’ liabilities.

Reporting by Beijing Newsroom, Samuel Shen and John Ruwitch; Editing by Sam Holmes