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CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL FOR TRANSMITTING THE REPORT SUBMITTED BY THE PEOPLE'S INSURANCE COMPANY OF CHINA ON DEVELOPING INSURANCE BUSINESS INVOLVING FOREIGN INTERESTS IN ORDER TO INCREASE FOREIGN EXCHANGE REVENUE

    The Report on Developing Insurance Business Involving Foreign Interests
in Order to Increase Foreign Exchange Revenue, which was submitted by the
People's Insurance Company of China, has been approved by the State Council
and is hereby transmitted to you for you to act upon accordingly.
Report of the People's Insurance Company of China on Developing Insurance
Business Involving Foreign Interests in Order to Increase Foreign Exchange
Revenue (Excerpts)

    In accordance with the essence of the policies of the State on striving
to increase non-trade foreign exchange revenue, we have recently made a study
of the question as to how to develop insurance business involving foreign
interests in order to increase foreign exchange revenue. We now submit the
report on the relevant questions as follows:
Chapter I

    With the implementation of China's policy of opening to the outside world,
the insurance business involving foreign interests handled by our Insurance
Company has developed rapidly in recent years. At present, there are already
over 40 types of insurance coverage. The handling of the insurance business
involving foreign interests so as to give financial protection against risks
(including material losses and indemnity liability) involved in China's
foreign trade and economic exchanges and provide services with a view to
preventing losses has played a positive role in promoting China's foreign
trade and economic exchanges and in enhancing the confidence of foreign
businessmen coming to make investment in China.
Chapter II

    As the income from the premiums of insurance involving foreign interests
is an important item of foreign exchange revenue of invisible trade, the
various countries in the world have attached great importance to and are
actively developing this business. At present, China's insurance business
involving foreign interests is developing at a relatively slow pace and the
premiums only account for a very small proportion of the State's total
non-trade foreign exchange revenue, which ill conforms with the new situation
in which China is implementing the policy of opening to the outside world.
Take, for example, the transportation insurance for import and export goods
the handling of which has lasted for a relatively long time and the premium
income of which ranks first. Only 50 percent of the export goods is insured
domestically and such bulk goods as petroleum, which account for over
one-third of the total export business volume of China, are rarely insured
with our Company. Nearly 90 percent of the import goods in normal trade is
insured domestically, but most of the equipment imported under loans China has
obtained from abroad is insured by insurance companies abroad. Furthermore
only a very small proportion of the insurance related to the Chinese-foreign
contractual joint ventures and foreign-capital enterprises in China and under
the project contracts China has undertaken abroad or the labour service
co-operative contracts with foreign countries, of the insurance taken out by
foreigners or compatriots from Hong Kong and Macao coming to China's mainland
for tourist purposes, of the public liability insurance that the personnel of
foreign institutions in China are supposed to bear in China, and of the
insurance related to Chinese institutions abroad and the trade centres, joint
ventures and contractual joint ventures China has established abroad is
effected by our Company. In some cases, the insurance is even not effected in
China at all. All the above mentioned circumstances show that China's
insurance business involving foreign interests still has great potentials and
bright prospects.
Chapter III

    With a view to further developing China's insurance business involving
foreign interests, it is imperative to adopt the following measures at present:

    1. It is imperative to conduct publicity drives actively, The Insurance
Company shall, with the support and help by the various departments, people
from all walks of life and the public opinion circles, employ varied means
and actively propagate the significance of developing insurance business
involving foreign interests and increasing foreign exchange revenue from
non-trade sources and of the advantages of handling insurance business
involving foreign interests to the expansion of international economic
exchanges in order to mobilize the various forces to support the development
of insurance business involving foreign interests.

    2. It is imperative to perfect the clauses related to insurance in China's
foreign economic laws and regulations. All clauses on insurance that need to
be included in the various foreign economic laws and regulations China
formulates and promulgates shall be handled in strict accordance with the
provisions in Article 3 of the Interim Regulations on the Administration of
Insurance Enterprises, which was promulgated by the State Council, it is
imperative for China to expedite the formulation and promulgation of
regulations concerning the public liability insurance that shall be effected
with respect to foreign enterprises, institutions and personnel in China
and the motor vehicle third-party liability insurance.

    3. Departments for foreign affairs and departments for foreign economic
relations and trade under the governments at various levels shall give
guidance and assistance to the development of insurance business involving
foreign interests. Departments for foreign economic relations and trade that
are to call important meetings or hold talks with foreign businessmen on major
projects shall keep the Insurance Company advised of the relevant developments
and shall, if necessary, invite people from the Insurance Company to attend
such meetings or talks. In examining and approving the feasibility study
report and the draft contract with respect to a project involving a foreign
party, the inclusion of clauses on insurance shall be one of the items for
consideration. Chinese labour service units that are contracting foreign
engineering projects shall try their best to effect in China the insurance
with respect to the projects, provided this shall not constitute a violation
of the laws of the foreign governments involved. If insurance is required for
the property and personnel of Chinese embassies, consulates and other
institutions abroad, it shall be effected in China, unless the laws of the
countries or regions concerned stipulate that the insurance shall be effected
in their localities. Chinese banking institutions based overseas shall work in
close co-operation with the Chinese insurance institutions in the localities
and actively engage in various types of insurance business.

    When these banks are handling loans on mortgage, they shall try hard to
cover the insurance with the Chinese insurance institutions there with respect
to the security of the loans. The Insurance Company may, when necessary, send
their personnel to, and station them in, the corporations, trade centres and
other institutions established abroad by departments and organizations
affiliated to the Chinese Ministry for Foreign Economic Relations and Trade to
co-ordinate work in handling insurance business. Chinese departments for
tourism shall give active assistance to the Insurance Company in providing the
insurance required by tourists in China.

    4. The Insurance Company shall be permitted to employ economic means to
promote the development of insurance business. A considerable part of the
insurance business involving foreign interests has been canvassed through
efforts on the part of the business personnel of the departments for foreign
economic relations and trade and other departments concerned. Take, for
example, the transportation insurance for import and export goods. Faced
with the fierce competition in the international insurance market, Chinese
departments for foreign economic relations and trade and other departments
concerned, in order to increase foreign exchange revenue from insurance
business, often have to conduct strenuous negotiations and do extra amounts
of laborious work before they can succeed in obtaining some insurance
business involving foreign exchange. In order to encourage the workers and
staff of the departments for foreign economic relations and trade and other
departments concerned who actively assist the Insurance Company in developing
the insurance business involving foreign interests so as to earn more foreign
exchange revenue for the State from non-trade sources, the Insurance Company
may draw a certain proportion (ranging from less than one percent to less
than ten percent) from the premium income as labour service fee to be paid to
the aforesaid units to be paid with RMB, which shall, on top of the common
bonus, reward those workers and staff members who have performed well in this
regard. Such rewards may be exempted from bonus tax. The Ministry of Finance
shall formulate measures in this respect and promulgate them for
implementation.

    5. Foreign insurance companies shall for the time being not he permitted
to begin their business operations in China.

    6. The Insurance Company shall strengthen its own organization setup.
Since the Insurance Company itself separated from the People's Bank of China
last year, although there has been a relatively big increase in its agencies
and personnel, this increase still cannot meet the needs of its business
development. It is an urgent task to improve the quality of the personnel
engaged in insurance business involving foreign interests, who shall be
required, to have a better knowledge of the international economy and of
China's laws and regulations governing its external economic activities and
have a fairly good command of foreign languages. Therefore, in addition to
intensifying our work to offer in-service training to our cadres, we hope
that the departments for education will provide us every year with a certain
number of university graduates who major in foreign languages, finance or
insurance, and will arrange in a planned way for some institutions of higher
learning to initiate the specialty of insurance so as to quicken the
cultivation of cadres who will specialize in insurance business. The Insurance
Company shall work hard to improve the quality of service, increase the
types of insurance coverage and strengthen China's competitive position in
insurance business.

    If the above contains nothing inappropriate, it is requested that the
report be approved and transmitted to departments concerned for implementation.