Exclusive | China Life’s property investment arm among funds making hay as banks shy away from real estate

Chinese insurers are benefiting from Beijing’s deleveraging drive, as a scarcity of long-term funds helps them seal commercial property deals.

Chinese commercial banks’ funding of the property sector has been clipped by the central government’s debt-reduction campaign, which has given insurers an upper hand when it comes to premier assets.

China Life Capital Investment, the property investment arm of insurance giant China Life Insurance, is among the beneficiaries.

“In the old days, some commercial banks used short-term funds to invest in property projects that usually required five-year or more investment cycles. The new asset-management rules [since 2018] have banned such duration mismatches. That has left insurers, specifically life insurers, as literally the only funding source without such a mismatch,” Yang Yu, China Life Capital’s managing director, said in an interview. The company has more than 75 billion yuan (US$10.8 billion) in assets under management.

Before the rule change, banks channelled hundreds of billions of yuan raised from wealth-management products with a typical duration of three to 12 months to the property sector via asset-management schemes and trust firms. These massive inflows fuelled a buying spree by Chinese investors before 2017, which also saw foreign investors lose out against high bids. The new rules ban such practices, stemming the use of short-term funds for investment in property projects that usually require longer investment cycles, as well as asset-price bubbles.

“As China’s economy gets even more sophisticated, the life insurance sector will grow and yield more financial titans. Insurers might surpass banks as the largest funding source for asset managers, just like in developed markets,” Yang said.