Speculation over investment plans for China's fast-depreciatingpension funds settled on Tuesday after the National Council forSocial Security Fund (NCSSF) said it has been entrusted by southChina's Guangdong province to manage 100 billion yuan ($15.8billion) of the funds. The move marks the first step in the country's efforts to preserveand increase the value of its vast, locally-managed pension funds,which were previously parked in banks or used to purchase treasurybills with low returns. Statistics showed that as of the end of 2011, basic pension fundsmanaged by local governments neared 2 trillion yuan. However, the massive funds have seen their value erodedsignificantly by inflation over the last decade.
Based on the one-year interest rate, the annual yield on depositsaveraged at around 2.88 percent over the last decade, while theconsumer price index (CPI), a main gauge of inflation, grew between3 percent to 6 percent over the last few years, resulting in hugelosses for the funds. Opening new investment channels for pension funds is a must forChina, as it faces a huge challenge in caring for its increasinglylarge elderly population, experts said. "Pushing for the investment and operation of pension funds is anatural trend. The NCSSF has rich experience in this area," saidHuang Zemin, director of the Institute of International Finance atEast China Normal University.
Statistics from the NCSSF, which manages the country's fiscalallocation of security funds, showed that it has managed to garneran average annual return of 8.41 percent since its establishment in2000. China's stock market received a lift on the news, as investorsbelieve the NCSSF will put some of the money into the market. Thebenchmark Shanghai Composite Index opened 0.33 percent higher onWednesday to reach 2,384.71. To ease public concerns regarding stock market risks, the NCSSFsaid it will allocate most of the money to fixed-income productsover the coming two years in a "prudent manner." It did not say whether it will put money in the capital market. Coal Fired Boilers
Analysts said even if the NCSSF uses the money to buy stocks, theproportion will likely be very low. China's pension program consists of three separate funding sources:the national social security fund, supplementary pension fundssupplied by enterprises and self-paid funds under the management oflocal governments. The former two allow investment and operation under certainregulations. For example, the ratio of bank deposits and treasurebill purchases to other forms of investment should not be lowerthan 50 percent for national social security funds; the ceiling forstock investment is 40 percent. Brick Autoclave
Huang said the government should come up with a similar investmentframework for locally-managed pension funds as well. "The regulation should specify a ratio for pension funds allowedfor investment and that allowed for financial assets investment. Weshould learn from and make timely adjustments to Guangdong's pilotprogram," he said. Dai Xianglong, chairman of the NCSSF, said the management of thepension funds should proceed step-by-step. China Pressure Vessel Tank
He said investment in stocks should be "long-term, value-orientedand responsible.".
Based on the one-year interest rate, the annual yield on depositsaveraged at around 2.88 percent over the last decade, while theconsumer price index (CPI), a main gauge of inflation, grew between3 percent to 6 percent over the last few years, resulting in hugelosses for the funds. Opening new investment channels for pension funds is a must forChina, as it faces a huge challenge in caring for its increasinglylarge elderly population, experts said. "Pushing for the investment and operation of pension funds is anatural trend. The NCSSF has rich experience in this area," saidHuang Zemin, director of the Institute of International Finance atEast China Normal University.
Statistics from the NCSSF, which manages the country's fiscalallocation of security funds, showed that it has managed to garneran average annual return of 8.41 percent since its establishment in2000. China's stock market received a lift on the news, as investorsbelieve the NCSSF will put some of the money into the market. Thebenchmark Shanghai Composite Index opened 0.33 percent higher onWednesday to reach 2,384.71. To ease public concerns regarding stock market risks, the NCSSFsaid it will allocate most of the money to fixed-income productsover the coming two years in a "prudent manner." It did not say whether it will put money in the capital market. Coal Fired Boilers
Analysts said even if the NCSSF uses the money to buy stocks, theproportion will likely be very low. China's pension program consists of three separate funding sources:the national social security fund, supplementary pension fundssupplied by enterprises and self-paid funds under the management oflocal governments. The former two allow investment and operation under certainregulations. For example, the ratio of bank deposits and treasurebill purchases to other forms of investment should not be lowerthan 50 percent for national social security funds; the ceiling forstock investment is 40 percent. Brick Autoclave
Huang said the government should come up with a similar investmentframework for locally-managed pension funds as well. "The regulation should specify a ratio for pension funds allowedfor investment and that allowed for financial assets investment. Weshould learn from and make timely adjustments to Guangdong's pilotprogram," he said. Dai Xianglong, chairman of the NCSSF, said the management of thepension funds should proceed step-by-step. China Pressure Vessel Tank
He said investment in stocks should be "long-term, value-orientedand responsible.".
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