China will promote effective conversion of household savings into long-term funds in capital markets by strongly developing enterprise annuities, as well as various health and endowment insurance products, according to the China Banking and Insurance Regulatory Commission.

The country will also allow wealth management, insurance and trust products to play an effective part in direct financing, foster the mindset of value investing and long-term investing, and improve the structure of investors in its capital markets, the banking and insurance regulator said in guidelines issued recently for promoting high-quality development of the banking and insurance sectors.

Zeng Gang, deputy director-general of the National Institution for Finance and Development, said in the past, asset management products were mostly invested in quasi-credit assets including nonstandard products, rather than being invested in capital markets from which companies raise money directly.

"Financial regulators are promoting transition in the asset management industry by investing a large portion of assets in stocks and bonds, instead of nonstandard products. This will promote healthy development of capital markets in the long run by providing long-term and sustainable sources of funds and fostering more institutional investors. As the number of institutional investors increase, investment decisions will become more rational," Zeng said.

"A growing part of household savings will gradually turn into long-term funds in capital markets. During the process, to ensure the safety of funds and lower capital market risks effectively, China should carry out fundamental capital market reforms to enhance the quality of listed companies, build a diversified market withdrawal system, optimize regulations, and improve minority investor protection. This is an overall reform that needs China's banking and insurance regulator as well as securities regulator to chip in with their contributions," he said.

The latest guidelines will promote diversification of China's banking and insurance system and improve its service capability, said Zhang Xingrong, managing director of the Bank of China Research Institute.

The development of wealth management subsidiaries of commercial banks and insurers will further diversify household savings, which will be increasingly invested in medium－and long-term investment markets such as the annuity market. This will promote steady and long-term development of the financial market where borrowers raise money directly, in addition to helping investors achieve the goal of prudent investment and realizing profits to a certain extent, Zhang said.

"The investment and research capabilities of financial institutions are a major criterion for clients to choose asset managers. Institutions that have stronger risk management capability and more secured returns on investment than their competitors will enjoy better growth," he said.

"The hunt, fostering and deployment of talents specialized in asset management is the top priority for improving financial institutions' investment and research capabilities. It is also important to respond to market changes more quickly and optimize investment portfolios to help clients hedge against risks by adopting quantitative market analysis and new instruments backed by artificial intelligence. Besides, with the establishment of wealth management joint ventures in China, household asset allocation will become increasingly globalized and diversified," he said.

Wen Bin, chief researcher with China Minsheng Banking Corp, highlighted the importance of the development of capital markets to the economic transformation of China and the development of innovative enterprises.

"The main institutional investors in the stock market were brokerages, mutual funds and private fund companies. In the next stage, household savings will also become part of the supply of long-term funds for capital markets," Wen said.

To better contain risks, he said regulators have set requirements on the scope of investment for different institutional investors, putting limits on leverage ratios of investment products and on the proportion of investment in equity assets to total assets.