Beijing wants giant insurers to prop up China's stock market.
Doubt surrounds whether institutional investors will respond to prompting from policymakers.
China's economic helmsmen want to transform state-owned insurance companies into key pillars of long-term support for the nation's stock market.
Domestic observers have expressed doubts about the effectiveness of such efforts, however, given that China's state-owned investors are still required to fulfil the market imperative of pursuing returns first and foremost.
The moves coincides with the increased use of interventions by state-owned investors such as Central Huijin, to stabilise the market and stymie price volatility in the wake of the turmoil triggered by Trump's Liberation Day tariffs.
It also coincides with a broader campaign to step up the role of capital markets in a financial system long dominated by its large state-owned banks.
This campaign will entail cultivating sources of long-term investment and "patient capital" - chiefly by tapping big institutional investors such as commercial insurers, national social insurance funds, basic pension funds and mutual funds.
How China hopes to drive insurance giants to buy more stocks
Beijing does not plan to resort to brute-force administrative measures to push Chinese insurance giants to step up their stock market investments.
It instead hopes to use the carrot method of adjusting the key assessment metrics for the nation's state-owned insurance firms, in order to preserve the independent decision-making deemed necessary for the market to function efficiently as a resource allocator.
On 11 July, China's Ministry of Finance (MOF) issued the "Notice on Guiding Long-term Stable Investment by Insurance Funds and Further Strengthening Long-term Assessment of State-owned Commercial Insurance Companies" (关于引导保险资金长期稳健投资 进一步加强国有商业保险公司长周期考核的通知).
The Notice calls for "better employing the role of the long-term capital and patient capital of insurance funds as a ballast stone" for the stock market.
Chief amongst the changes outlined by the Notice are extensions to the period of assessment for Chinese insurance companies to five years when it comes to:
Return on net assets.
Capital preservation and appreciation rates.
The Notice mandates the assessment of both these metrics based on a combined method encompassing a current year index, three year index and five year index.
Under the new method, the three year index will receive the strongest weighting at 50%, followed by the current year index (30%) and finally the five year index (20%).
The return on net assets for insurers had previously been assessed based on a current year index plus a three year index, while capital preservation and appreciation rates were assessed solely on a current year index.
Economics commentator Pi Haizhou (皮海洲) also points to regulatory loosening which gives Chinese insurers far greater of room on their balance sheets to step up their equity investments.
Insurance companies are now permitted to increase their equity investments to up to 30% of total assets as of the end of the preceding quarter. Those insurers with higher levels of solvency are granted additional leeway to raise these investments to a 45% share.
Pi notes that at present the equity investments of insurers generally hovers between the 10 - 15% mark, giving them up to 35 percentage points of additional space for greater allocations.
Anticipated outcomes and doubts
China Life - China's biggest insurance company, laid it on thick following the release of the Notice.
It said that the directive serves to "embody the guidance given by fiscal authorities to state-owned commercial insurers in better fulfilling the roles of economic shock absorber and social stabiliser."
Guangfa Securities said the new longer-term assessments would help to reduce the impact of short-term market volatility on the medium and long-term investment behaviour of insurance firms.
"This will inject the waters of life into the high-quality development of the capital market," Guangfa analysts wrote.
"It will optimise the market structure, reduce market volatility, and better employ the role [of long-term investment] as a stabiliser or ballast stone for the capital market."
Pi Haizhou argues, however, that there’s no dead-set certainty insurers will abide by the wishes of Chinese policymakers and dive collectively into the stock market.
"There's no doubt that the issuance of the notice is of benefit to driving insurance funds to enter the A-share market, but this does not mean that they will enter the A-share market en masse," Pi wrote in a recent opinion piece (皮海洲：长周期考核机制落地 保险资金会大举进入A股市场吗？).
He points to a Catch-22 in the plans of Chinese regulators. While authorities wish to drive insurance companies to expand their equity holdings to support the stock market, the insurance companies will only respond to this mandate if the stock market can offer them solid returns.
While Chinese insurers are subject to greater pressure and suasion from policymakers than their counterparts in OECD nations, they are still expected to behave like rational and self-interested actors to ensure the sound functioning of the market.
Pi argues that "it doesn't matter if the relevant authorities push them, the willingness of insurance funds to invest still won't be high” if the returns aren’t there.
"After all, investment is in principle a form of market behaviour, which requires that insurance companies make their own decisions," he writes.
"What investors care about most is returns on investment. It doesn't matter if the assessment term is extended to five years, returns on investment are still necessary.
"If the market provides excellent investment returns, then insurance funds will of course be willing to invest more into the market.
"Conversely, if returns are lacking then insurance companies will of course be unwilling to invest more into the market.”
China's campaign for greater institutional stock investment
The release of the 11 July Notice arrives just half-a-year after Beijing signalled the launch of concerted measures to drive greater long-term investment into the stock market from institutional players.
In January of this year, the Chinese central bank and MOF led the release of the "Implementation Plan for Work in Relation to Driving Medium and Long-term Funds to Enter the Market" (关于推动中长期资金入市工作的实施方案).
A key focus of the Implementation Plan was guiding commercial insurers, national social insurance funds, basic pension funds and mutual funds to expand their equity investments.
Beijing's end goal is to shore up the stability of the Chinese stock market, in the hopes of enabling it to play a greater role in the allocation of financial resources towards the real economy.
This is especially the case when it comes to cultivating greater capital market support for China's tech sectors.
Beijing is eager to wean itself off dependence on imported US technology, as uncertainty surrounding relations between the two economic superpowers further mounts with Trump's second term in office.
At the time of the Plan's release, Wu Qing (吴清), chair of the China Securities Regulatory Commission (CSRC), highlighted the need for "further increasing the equity allocation capability of medium and long-term funds, and steadily expanding their investment scope."
Wu said the plan would serve to "stabilise the positive conditions for recovery and improvement of the stock market, and help with the stable and healthy operation of capital markets."