Recently, Shanghai Rural Commercial Bank Co., Ltd. (hereafter referred to as “Shanghai Rural Commercial Bank”) announced the resignation of Li Guanying from his position as a director due to work reasons. The bank stated that Li Guanying's departure will not cause the board of directors to fall below the legal number of members and will not affect its normal operations.
As a director nominated by Tai Ping Life Insurance and dispatched by Tai Ping Asset Management, Tai Ping Asset responded to Li's resignation by stating that investing in Shanghai Rural Commercial Bank shares is part of the diversified portfolio management of insurance funds. Li Guanying's resignation is based on the need for adjustments to the accounting standards of insurance companies. Tai Ping Asset will leverage its expertise in managing insurance funds to continue deepening cooperation with the bank.
This seemingly ordinary personnel change has sparked widespread speculation in the industry due to its connection to the complex background of insurance fund investment accounting.
On the evening of October 20, Shanghai Rural Commercial Bank announced that Li Guanying had resigned from his position as director on October 17, well ahead of his original term ending on October 10, 2026.
Li Guanying currently serves as the deputy general manager (acting) and financial head of Tai Ping Asset. In August 2022, the 17th meeting of the fourth board of directors of Shanghai Rural Commercial Bank approved Li's nomination as a candidate for a non-executive director. He assumed the position of non-executive director in October 2023.
The shareholding structure shows that Tai Ping Life holds 4.3% of Shanghai Rural Commercial Bank’s shares, and both Tai Ping Life and Tai Ping Asset belong to China Taiping Insurance Group.
Li Guanying's role as a director nominated by Tai Ping Life and sent by Tai Ping Asset to the board of Shanghai Rural Commercial Bank links his identity to China Taiping Insurance Group's investment strategy in the bank.
Regarding Li Guanying's early resignation, Tai Ping Asset emphasized that investing in Shanghai Rural Commercial Bank shares is part of a diversified investment approach for insurance funds, and the resignation was based on adjustments needed for the accounting standards of insurance companies.
Industry insiders who spoke to reporters speculated on the implications of this decision from an accounting perspective, suggesting that China Taiping may not want to maintain significant influence over Shanghai Rural Commercial Bank.
These insiders noted that given the overall strong performance of the stock market this year, if China Taiping had appointed a director to Shanghai Rural Commercial Bank, it would need to use the equity method for accounting.
This point is reflected in China Taiping's 2024 annual report, which states that Tai Ping Life has a director at Shanghai Rural Commercial Bank and participates in decisions regarding its financial and operational policies. Therefore, the group believes it can exert significant influence over the bank and accounts for it as an associated enterprise using the equity method.
The insiders further explained that under the equity method, the investing entity accounts for its share of net assets based on its ownership percentage. However, this method does not allow one to benefit from the gains associated with an increase in stock prices. Not appointing a director typically implies that the investor does not have significant influence over the invested party, allowing them to avoid using the equity method for accounting.
While the accounting rationale is clear, market interpretations of the event have varied. Following Li Guanying's resignation, speculation arose that Tai Ping Asset might plan to reduce its stake in Shanghai Rural Commercial Bank or adjust its cooperative strategy.
However, Xu Gaolin, an associate professor at the School of Insurance at the University of International Business and Economics, noted that predicting the subsequent impacts of the resignation is challenging as it depends on various undisclosed internal considerations. It could just be part of a routine personnel change, with a new director appointed later, or due to other reasons related to accounting standards.
Tai Ping Asset did not provide specific details about any changes to accounting items in its response, only stating that it will “continue to deepen friendly cooperation.” Shanghai Rural Commercial Bank’s announcement also did not mention any future director nomination plans, leaving uncertainties.
However, regarding rumors in the market that Tai Ping Life might reduce its stake in Shanghai Rural Commercial Bank, Xu emphasized that while the market's connections seem reasonable, they are often based on partial information and can lead to overinterpretation.
From a board operation perspective, Li Guanying's resignation, as deputy general manager (acting) of Tai Ping Asset, does sever the significant influence chain that China Taiping had over Shanghai Rural Commercial Bank.
Therefore, should China Taiping not appoint a director to Shanghai Rural Commercial Bank after Li Guanying’s resignation, its status as a significant influencer would naturally be terminated, leading to changes in the investment classification.
Xu explained that China Taiping's investment in Shanghai Rural Commercial Bank would shift from long-term equity investment to “financial investment,” changing from a proportionate measurement to a fair value measurement.
Under the new accounting standards, China Taiping’s investment in Shanghai Rural Commercial Bank will be classified as FVTPL or FVOCI assets. The aforementioned insiders analyzed that without using the equity method, China Taiping's equity investment in Shanghai Rural Commercial Bank will be categorized as a financial instrument, applicable for fair value measurement. In this framework, whether the investment is measured at fair value with changes included in profit or loss (FVTPL) or other comprehensive income (FVOCI), the gains can be reflected in the overall investment income of the enterprise.
They further posited that if fair value changes are included in profit or loss, it will directly create current profit; if included in other comprehensive income, it will increase reserves under equity, thereby enhancing the scale of net assets. Thus, regardless of the handling method, the financial statements of the enterprise will reflect the gains brought about by the stock market’s rise this year.
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