In a move to boost returns, Chinese pension funds have begun
investing in securities, a radical change from their traditionally low-risk,
low-return strategy of leaving the funds in banks, or investing in treasury
Seven provincial-level regions, including China’s two
largest cities of Shanghai and Beijing, have entrusted their pension funds to
the National Council for Social Security Fund (NCSSF) for investment.
The National Social Security Fund (NSSF) is China’s social
security reserve fund to supplement and adjust the social security spending,
such as social insurance during the peak time period of the aging of
population. The funding sources of NSSF include fiscal allocation from the
central government, the transfer of state-owned capital and the fund investment
proceeds, and capital raised by other methods approved by the State Council.
Although the provincial governments are not allowed to
invest in financial products such as equities and bonds, the NCSSF is allowed.
The fund holds close to $300 billion in assets, and has returned an average 8.8%
per year since 2000, included a 15%
investment return in 2015, according to Bloomberg
News, citing Shanghai’s Securities
Daily state media reports. However, the locally managed pension funds only
returned approximately 2.3%
Chinese state news agencies reported that 360 billion yuan
($52.41 billion) is being transferred from bank accounts operated by local
authorities to the NCSSF for centralized asset management.
The decision, which is a fundamental change in the way
China’s pension funds are managed, was first announced in 2015. The State Council
had issued guidelines to ease investment rules on pension funds, and allowed
their entry into the stock market, which had been suffering from extreme
The hope was that the markets would become more stable from
the massive injection of long-term investments that could come from pension
funds, while at the same time the funds would benefit from higher returns.
In December, the Chinese government approved 21 pension-fund
management institutions, which included 14 fund management companies, six
insurance companies, and one securities firm. China Asset Management, China
Life Pension, and CITIC Securities were among the approved firms.
On Wednesday, China's State Council announced it will further
loosen access restrictions on private investment, and encourage participation
in sectors such as medical services, elder care, education, culture and sports.
The government will encourage investment funds dominated by private capital and
operating under market mechanisms, according to a statement released after a
State Council executive meeting.
There will be more financing channels in the equity and bond
markets, and collateral financing, enabling companies to use their intellectual
property rights and rights to earnings as collateral to secure financing. Favorable
policies in land use and taxation for private investment will also be established.
By Michael Katz