"The (pension and insurance) funds are working well as long-term, steady institutional investors," said the fund supervision department of the China Securities Regulatory Commission, in a Website statement.

"They usually conduct medium- and long-term investments, which can help reduce market volatility."

Insurance capital holds 25 percent of stocks traded in the United States, 40 percent in European countries and 50 percent in Japan, the statement said on December 28.

No foreign insurer has yet to apply to invest in Chinese stocks "probably due to their conservative strategies," it said.

"But they are certainly the type of investors we want to lure as they have a large amount of assets under management and feature a steady operation style."

China started allowing foreign purchases of its yuan-denominated shares in 2003 under a license-and-quota system, as the country moves to shore up stock-market maturity with overseas expertise.

The CSRC issues licenses while the State Administration of Foreign Exchange grants quotas that specify how much stock each overseas investor can buy under the Qualified Foreign Institutional Investor, or QFII, scheme.

In August, China eased rules governing the QFII project, allowing a broader class of investors and slashing capital requirements for market entry.

Regulators allowed overseas trust firms, pension funds, charity funds and endowment funds to join the program. Authorities also halved the required amount of securities under management to US$5 billion for mutual funds and insurance firms.

"The regulator's position is to gradually open the capital market to overseas participation with priority given to long-term investors," said a source close to the commission.

"As domestic bourses are beefing up corporate governance and listing quality, the regulator deems it's the right time to welcome choosier investors."

The CSRC has so far granted a combined quota of about US$9 billion to 40-plus overseas institutions, mostly banks, mutual funds and brokers, for trading yuan-backed stocks and bonds.

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