China has provided the Western world with one more reason to feel beholden to it despite uneasiness over a variety of issues, including human rights. In the latest move, Chinese insurance companies have been allowed to spend a whopping $35 billion to buy up equities, bonds and derivatives in the London and New York market.

The Chinese fund tap might eventually result in a capital outflow exceeding $100 billion into the world’s financial markets as the nation’s banks are preparing to invest a portion of their assets overseas.

The first signal has already come from the China Banking Regulatory Commission, which recently allowed domestic banks to invest in Hong Kong stocks on behalf of their wealthy clients. CBRC also dangled a carrot at the world markets by announcing that it will let the banks invest in other foreign markets as long as the concerned regulators signed a cooperation agreement with it.

Negotiators in western countries dealing with Beijing have increasingly become aware that China controls one of the major taps of global capital flows emanating both from its industrial and financial industries. The Chinese government has indicated it is keen on financial investments in world markets as a means of extending its influence beyond world governments and into the markets. It recently set up an investment company, which announced plans to invest $3 billion in the US based private equity firm, Blackstone.

In the latest move, the China Insurance Regulatory Commission has permitted local insurance companies to put their money in equity, bond and derivative markets overseas. To begin with, the regulator will permit them to invest in “mature markets’’ like London and New York later this year before letting the insurers to explore other markets in the world. Insurers would be allowed to invest 15% of their total assets, which stood at $2,574 billion by 2006- end, in overseas financial products.

The decision will lead to the release of $39 billion for investment in London and New York. Most insurers are expected to avail of this golden opportunity as they have been hamstrung by limited investment opportunities and consequently low return on investment at home.

CAPITAL CONTROL

The China Insurance Regulatory Commission has permitted local insurance companies to put their money in equity, bond and derivative markets overseas

Insurers would be allowed to invest 15% of their total assets, which stood at $2,574 billion by 2006- end, in overseas financial products.

TOI