An Analysis of Insurance Industry Pushing Structural Reform of the Supply Side_时代人物智库_
An Analysis of Insurance Industry Pushing Structural Reform of the Supply Side
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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


. 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 PPIs 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



 . 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(,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)


Scope of investment


Loan business,  financial bonds


Loan  business, financial bonds, inter-bank lending


Loan  business, financial bonds,portfolio investment


Bank deposit, national debt, financial bonds


Bank deposit, national debt, financial bonds, funds


Bank deposit, national debt, financial bonds, funds,  stock


Bank deposit, national debt, financial bonds, funds,  stock,  indirect investment in infrastructure development project,real estate


Bank deposit, national debt, financial bonds, funds,  stock,  indirect investment in infrastructure development project,real estate , PE


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.




 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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