Wang Enguang , Liu Zhaode, Qiu Lingying
(School of Economics
and Trade, Guangdong University of Finance and Economics, Guangzhou
510320, China)
Abstract: According to the
requirement of structural reform of the supply side,China recently puts forward the
"three deletions one decrease one make up" major task. Insurance
industry ,as a sunrise industry in China, has rapid development of assets and
significantly improved quality of development.The scale of insurance assets is
large.Both export credit insurance and science and technology insurance have a
larger space for development,further helping the smooth implementation of the
short-term task of structural reform of the supply side,that is,"three
deletions one decrease one make up". Insurance industry should play the
roles of "society stabilizer" and "economic booster". The
article also explains the research and practice situation at home and abroad,
and provides a useful reference for the development of China's
insurance industry under the new situation.
Key words: supply side; insurance industry; push reform;
useful reference
Ⅰ.
Introduction
During more
than thirty years of reform and opening up, China has won sustainable and rapid
economic growth, successfully enters the rank of middle-income countries, and
becomes a major economic power. However, behind the rapid economic growth, China faces
such long-term accumulated problems as obviously insufficient demographic
dividend advantage and the risk of
"middle income trap". In terms of industrial structure, the
proportion of low value-added industries, high consumption industries, high
pollution industries and high emissions industries is high, while the
proportion of high value-added industries, green low-carbon industries, and
industries with international competitiveness is low, so China has an
urgent need to upgrade the industrial structure. For example, since 2003, the
industries of steel, coal, cement, glass, petroleum, petrochemical, iron ore,
non-ferrous metals and others have experienced a 80% loss, a significant
decline in profits and serious excess in capacity.As of early December 2015,
the PPI of the above industries has showed a continuously negative growth
during more than 40 consecutive months , which accounts for 70% -80% of the
whole industry PPI’s decline, overall showing the oversupply of
middle-end and low-end products. In the first half of 2013, The capacity
utilization rate of China's
industrial enterprises is less than 79%(Li Xia , 2014).The capacity utilization
rate is in a downward trend (see Figure 1). High-end products are in supply
shortage. That is to say, a lot of products are available but in poor quality.
Some of China's capital-intensive heavy industries have developed into a
certain degree of duplication and overcapacity (Guogao Han, 2011), resulting in
the deviation from the balance of supply and demand.Under the socialist system,
to organize supply-demand balance of the
market and to maintain the
proportion of supply and demand in coordination are important parts of comprehensive balance of
the national economy.So the balance of supply and demand of commodity has a
very important significance on the development of the national economy. China, under
the new normal economy, faces the
obstacle from excessive capacity and can not achieve a high balance level of
supply and demand. The main reason for this is the supply problem. However,
relying solely on the corresponding fiscal
and monetary policies to resolve the problem of excessive capacity can not achieve the desired effect. In the
macro level, the fiscal and monetary policies continue to increase efforts but
the effects are not too obvious, since it involves the coordination issues . If
the financial and industrial policies
are not coordinated, it not only affects the policy effect, but also brings
some adverse policy effects, for example, hindering the industrial
restructuring and transformation and upgrading ( Feitao Jiang, 2016).Therefore,
on the basis of intensifying fiscal and monetary policies, governing redundant
construction and controlling overcapacity have become the top priorities of government departments to carry out economic restructuring
work.Therefore, at the Eleventh Meeting of the Central Finance and Leading
Group held on November 10, 2015, General Secretary Xi Jinping first put forward
the concept of structural reform of the supply side, and pointed out that while
moderately expanding aggregate demand, it needs to focus on strengthening
structural reform of the supply side, the quality and efficiency of the supply
system and the economic growth momentum and promoting the overall level of
social productive forces in China. In
order to achieve the successful completion of
the structural reform of the supply side , He also put forward the
recent "three deletions one decrease one make up"task, that is, to
delete inventory,production and leverage,to decrease cost and to make up the short
board.So as an important industry for economic security and social management,
whether the insurance industry has the ability to help push structural reform of the supply side or not ?
In the "three deletions one decrease one make up"task, how does the insurance industry play their
own advantages? This article will do deep thinking on the above issues.
Figure 1: The trend chart of capacity utilization rate

Data Source: IMF estimates of China's
comprehensive capacity utilization
Ⅱ. The analysis of the role of insurance industry serving the
reform of the supply side and its
measures
Since the State Council issued a number of
opinions on accelerating the development of modern insurance services, China's
insurance industry has developed rapidly: the scale of business operations
increased,business risks effectively resolve;business organizations
continuously optimize; the ability to serve the society significantly enhances.
As the Chairman of China Insurance Regulatory Commission Junbo Xiang said in the 2016 Lujiazui forum: "The
insurance industry has a certain strength and foundation in serving the
structural reform of the supply side.The next step is to focus on optimizing
the supply of insurance, improving the financial market system, complementing
the shortcomings of social security, and enhancing the level of social care.
" We see the following specifically:
The
deleveraging of service
Leverage is using a small amount of money to
get a greater income, that is high debt, especially in countries with more
developed capital market, where investment banks bear a lot of debt to do
investment operations and get considerable income.However, debt is an overdraft
of credit and is synonymous with risk.When the economic situation is better and
the investment income is higher, people tend to ignore the existence of risk,
and even cause the outbreak of economic crisis.According to the statistics from
National Finance and Development Laboratory of Chinese Academy of Social
Sciences, as of the end of 2015, the debt size of China's real economy is
160.67 trillion yuan and the leverage rate of real economy is 237.5%. This
shows that China
is facing a high-degree threat, so deleveraging is imminent. However,
deleveraging is not easily and quickly achieved ,
but also brings some negative effects. The financial market is full of
debt-financing tools and investment tools of higher leverage. In the process of
deleveraging, the dissolution of these tools will affect the market liquidity,
thus further affecting economic growth.The insurance industry can play its own
advantages, using its huge assets to supplement the market liquidity, further
promoting economic growth and easing the current economic downward pressure. In
recent years, premium income has grown rapidly and the asset size of insurance
industry is ambitious.According to the materials from the website of China
Insurance Regulatory Commission(http://www.circ.gov.cn),it shows that from
January to September 2016, China's original insurance premium income is
2516.826 billion yuan, an year-on-year increase of 32.18%: property insurance
company's original premium income is 682.484 billion yuan, an year-on-year of
8.97%; life insurance company's original premium income is 1834.334 billion
yuan, an year-on-year increase of 43.56%.Figure 2 shows the upward trend of
China's insurance assets. Deyun Cao,the vice executive president and secretary
general of China Insurance Asset Management Association,said that the scale of
insurance assets in 2016 is expected to reach 15 trillion yuan in an interview
with Securities Times reporter.In addition, judged from the investment
structure of insurance funds, we think that it will become more and more rational and
diversified.The Decision of the China Insurance Regulatory Commission on
Amending the Interim Measures for the Administration of the Use of Insurance
Funds (hereinafter referred to as the "Decision") shall come into
force on May 1, 2014. The "Decision"
further regulates the behaviors of insurance funds investment on aspects
of the scope,mode,process of capital utilization,risk control, supervision and
management. Figure 2 lists the statistics of scope of insurance funds investment.We can clearly see
the insurance funds are investing into the real economy in a more diversified
direction, serving the development of the real economy.
According to the domestic
research on the use of insurance funds, the current research areas mainly are
related to venture investment of insurance funds ( Juan Cheng, 2006), the use
scope of insurance funds (Minfeng Xu , 2005), the investment portfolio of
insurance funds (Zhiyang Li , 2009), the real estate investment of insurance funds ( Haiyan Bo, 2011) and so on, mainly studying
the use channels and risk assessment of insurance funds and financial derivatives (such as stock index
futures) , but the study on insurance funds relating to the reform of the
supply side under the new normal is almost blank.
We
believe that the insurance industry should fully grasp the China's deleveraging
opportunity, which will not only increase their business scale, but also better
fulfill its functions of serving and managing the society.The CIRC should cooperate with the other financial
regulatory agencies to do the overall deployment. In the new situation,it shall
regulate the use system of insurance funds,enable more diversified and
rationalized use of insurance funds under the premise of the safety of
insurance funds,and further study the capital gap issues occurred in the
process of deleveraging. We should
fill the fund's "hole" in
order to better serve the real economy according to the provisions of the
"decision". Therefore, from the scale of assets and the use of
assets, the insurance industry can play
a greater role in helping push the structural reform of the supply side.
Figure 2: Chart of Total Assets Scale of
Insurance Companies (2006-2014)

Data Source: China Economic and Social
Development Statistics Database
Figure 3:The
statistics of insurance funds investment range
(1984-2012)
Period
|
Scope of investment
|
1984-1988
|
Loan
business, financial bonds
|
1988-1990
|
Loan business, financial bonds, inter-bank
lending
|
1991-1995
|
Loan business, financial bonds,portfolio investment
|
1995-1999
|
Bank deposit,
national debt, financial bonds
|
1999-2004
|
Bank deposit,
national debt, financial bonds, funds
|
2004-2006
|
Bank deposit,
national debt, financial bonds, funds,
stock
|
2006-2010
|
Bank deposit,
national debt, financial bonds, funds,
stock, indirect investment in
infrastructure development project,real estate
|
2010-2012
|
Bank deposit,
national debt, financial bonds, funds,
stock, indirect investment in
infrastructure development project,real estate , PE
|
2012-now
|
Bank deposit,
national debt, corporate bonds, financial bonds, funds, stock,
indirect investment in infrastructure development project,real
estate,stock index futures,financial derivative products,overseas investment,
commercial bank's financial products, infrastructure investment plans and
real estate investment plans managed
by insurance asset management company and so on.
|
Source: Research Report of 2012 Insurance Asset
Management Industry
Serve the deletion of overcapacity
In China,the oversupply issue
becomes increasingly prominent in some industries.Traditional manufacturing
generally has excess capacity, especially in such high consumption, high
emission industries as steel, cement, electrolytic aluminum and so on.
Overcapacity has become a outstanding problem which increasingly
constrains the development of the
economy.The current task is mainly to digest and
eliminate the lagging production capacity,to adjust and optimize the industrial
structure, and to enhance innovation drive of the enterprises.
(1)The
insurance industry greatly contributed to the expansion of the scale of
exports, especially since the introduction of export credit insurance,a policy
insurance which promotes the country's export trade and aims at protecting
foreign exchange security of the export enterprises. Export credit insurance
can improve the enterprise's credit rating to facilitate its financing and
improve the market competitiveness of enterprises to expand the market size and
recover the business through the timely loss compensation. At present, 12% -16%
of the world's total trade volume is completed under the support of the export
credit insurance. In the developed countries, the UK's support rate of export credit insurance is
about 45%, Japan is about 50%, and in all developed countries the rate accounts
for about 20% -30%. While the proportion
in our country is about 7%, far from the developed countries, and China's trade
dependence reached more than 70%. Therefore, from these data, export credit
insurance has a great room for development in China, especially in China's
structural reform of the supply side, so that export credit insurance shall
play its unique advantages as an export trade escort. The government should
give policy support, for example,giving export credit insurance tax incentives
and financial subsidies to encourage export business for industries with excess
capacity, and meanwhile insurance companies can design relevant insurance
products to further guide export credit
insurance needs of the import and export business, improve capacity
utilization, and solve the current situation of China's excess capacity.
(2)Adjust and optimize the
industrial structure, vigorously develop science and technology insurance to
escort high-tech R&D. Through technological progress, the overall quality
and efficiency of industrial structure can continuously evolve into a higher
level. At present, China's industries with excess capacity have low level of
technology, high energy consumption, high pollution and low added value,so the
upgrading of industrial structure is imminent. However, in the development of
new technologies and putting into production process,enterprises will
inevitably face the contradictions between high risk and high
profit.Enterprises are faced with uncertainty risks in research and development
of new technology, technical trading and putting into production, which make
high-tech not to be put into use. China
's insurance industry should seize the opportunity to increase the intensity of
research and development on science and technology insurance. Science and technology insurance takes the new energy and
energy-efficient technology as the insured scope,uses insurance as a means of
diversifying risk for technology
companies or R & D institutions,who can transfer the property loss,profit
loss or research funding loss caused by risks from R & D, production,
sales, after-sales and other management activities, and compensation
liability for the properties and
personal injury of the shareholders,employees or the third party to the
insurance company who can give insurance
compensation or payment of insurance fund in order to make the more cutting technology put into
production successfully.
From the perspective of foreign research and
practice, there are few studies on science and technology insurance. And the
research on science and technology insurance serving the structural reform of
the supply side has not been found at home and abroad. There is no concept of
science and technology insurance abroad.They just use other insurance forms to
indirectly protect the patent, intellectual property and the research and
development of new technology. In our country, Kefan Xie(2009) analyzed the risks existing in the
process of science and technology development and held that science and
technology insurance is an effective way to achieve risk sharing.Ying Zhang
(2002) ,from the economic point of view, thought that "science and
technology insurance is a major category of economic system to prevent the risk
of technological innovation. In order to make science and technology activities
to be smooth and stable, the insurance makes use of the collective power from
the majority of the society and does a reasonable calculation on the basis of
law of large numbers to establish the risk funds for the compensation
and payment for the risk of scientific and technological activities,making it
possible to continue to engage in economic innovation. In the practice of
domestic science and technology insurance, during the first batch of six cities
(districts), such as Beijing, Chongqing, Shenzhen, Wuhan and Suzhou High-tech
Zone, 5 cities(districts )have already introduced the specific policy and methods about the financial matching funds of
science and technology insurance. According to local conditions, the subsidy
conditions, subsidy methods and subsidy ratio of science and technology
insurance premiums have been set up. More than 1.2 million yuan of the financial
subsidy funds have been implemented. In June 2016, China Insurance Regulatory
Commission approved the establishment of Taiping Technology Insurance Co.,Ltd.
We believe that the development room for
China's science and technology insurance is very large, especially in the
reform of the supply side. Science and technology insurance is facing
unprecedented opportunities. The government should encourage the construction
of science and technology insurance companies, do targeted decentralization,
give financial support on tax and financial aspects, encourage and support
insurance companies to develop and design new technology products, do good
media publicity, improve high-tech enterprises' recognition and trust on
science and technology insurance and guide the demand for the insurance. The
insurance industry should seize the opportunity to do rational positioning,
coordinate with the government's industrial policy, optimize the selection and
employment system, and actively develop new products about science and
technology insurance, and truly improve the coverage of science and technology
insurance, making it to escort for the use of new technology.Meanwhile,the
technology staff can focus on the work and high-tech can really be put into
production, enhancing the driving force for enterprises' development and
promoting industrial upgrading.
Ⅲ Conclusion
This
paper analyzes the current economic situation and points out the economic
background of the structural reform of the supply side,that is,with the rapid
growth of China's economy, it is also facing downward pressure when China
becomes an economic power.After 2010, China's economic growth rate has slowed
down significantly and the economic development has entered a new trend.General
Secretary Xi Jinping uses the accurate and objective word "new
normal" to summarize the the law
and the status quo of Chinese economy. At present, the most prominent
problems are the relative surplus of products of the high energy consumption,
low added value, high pollution industries and the relative lack of effective
demand, so that to a certain extent, it deviated from the balance between the
market supply and demand.At the Eleventh Meeting of the Central Finance Leading
Group held on November 10, 2015, General Secretary Xi Jinping first put forward
the concept of structural reform of the supply side,demanded that while
moderately expanding domestic demand, efforts should be made to strengthen
structural reform of the supply side, and developed the "three deletions
one decrease one make up" task.Proceeding
from this task and combining with the actual situation of China's insurance
industry, we put forward that how the insurance industry plays their own
advantages to boost structural reform of the supply side in aspects of
deleting overcapacity and deleveraging. In the case of deleveraging, the
disbanding of debt financing tools and the investment tools with higher
leverage ratio in the capital market will inevitably affect the market
liquidity.This paper describes the scale of insurance assets and the use scope
of insurance funds. By analyzing the
feasibility, insurance funds can make up for the market liquidity in some
degree, and further ensure the
continuity of the production, distribution, exchange and consumption,
promoting economic development and the successful completion of the structural
reform of the supply side.In terms of deleting overcapacity, this paper
analyzes two aspects,that is,the digestion and exit of lagging capacity and the
adjustment and optimization of industrial structure. In the aspect of digestion
and exit of lagging capacity, the paper analyzes the potential of export credit
insurance in China, and points out that it is necessary to develop export
credit insurance and promote the development of China's import and export trade
so that the surplus industries can be transferred to overseas countries and
regions.In the aspect of adjusting and optimizing the industrial structure,
this paper puts forward that we should focus on the development of science and
technology insurance, analyze the research status and practice situation of
export credit insurance both at home and abroad and encourage science and
technology insurance to protect the utilization of new technology, promote the
upgrading of industrial technology and push the smooth development of the
structural reform of the supply side.
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