Insurance company shareholders could find their rights restricted if they approve risky capital operations, according to a draft amendment to the Insurance Law, submitted to Chinese lawmakers for discussion on Wednesday.

The draft amendment says the State Council's insurance regulatory body will have the right to order the insurance company's shareholders to stop affiliate company transactions that seriously harm the company's interests and undermine its solvency.

The draft gives no definition of these transactions, but stipulates that the China Insurance Regulatory Commission (CIRC) will decide on which transactions come into this category.

Before the actions are corrected, the regulatory body will constrain shareholders in the exercising of their rights. If they refuse to correct the actions, the regulatory body will have the right to order them to transfer their shares, but the draft gave no details as to how or to whom the shares would be transferred.

"The new article was added based on proposals from lawmakers in previous discussions. It is a supervision measure to prevent and correct the misuse of shareholders' power," said Sun Anmin, deputy director of the NPC law committee, at the session of the Standing Committee of the 11th National People's Congress (NPC) that opened on Wednesday.

The draft amendment has been submitted for review for the third time and will be put to a vote on Saturday, the last day of the session.

The draft amendment was first submitted for discussion last August. It expanded the investment channel for insurance companies from government bonds and financial bills to stocks, securities-investment funds and properties.

It also tightened qualifications for setting up an insurance company.

According to the draft amendments, a company's main shareholders should have net assets of at least 200 million yuan (US$29 million) each, a good credit record and no record of serious violation of laws and rules in the last three years.

It also makes a stricter requirement on registered capital, requiring all the company's registered capital to be raised from shareholders.

(Xinhua News Agency February 26, 2009)