China Issues Rules on Pension Fund Investments in Stock Market

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Last updated at: (Beijing Time) Wednesday, December 19, 2001

China Issues Rules on Pension Fund Investments in Stock Market

Details on how fund managers will be allowed to invest China's state pension funds in the country's stock markets emerged on Tuesday. With pension funds increasing stock markets liquidity, Ministry of Finance recently issued the regulations on trustee investment of state social security funds.

An injection of pension funds to increase stock market liquidity

Details on how fund managers will be allowed to invest China's state pension funds in the country's stock markets emerged on Tuesday, boosting share prices.

Shanghai B-shares closed 2.4 percent higher while local currency A-shares edged up 1.3 percent as the news fuelled investors' hopes an injection of pension funds would increase market liquidity.

Ministry of Finance issued regulations on investment of social security funds

State Social Security Fund board chairman Liu Zhongli said the Ministry of Finance recently issued the regulations on trustee investment of state social security funds, the China Securities Newspaper said.

Under the rules, fund management companies and bodies will have to meet certain conditions including getting approval from the China Securities Regulatory Commission.

The fund managers will require actual capital and net assets of no less than 50 million yuan (US$6 million) and, unless they have consistent experience of fund-management overseas, at least two years' experience of fund management in China.

According to a report in the People's Daily newspaper, Liu also said the interim management rules on the investment of the state social security funds, to be issued soon, require no less than half of the social security fund's total assets to be denominated in cash and treasury bonds.

The rules also stipulate that at least 10 percent of the security fund's assets must be in bank deposits and no more than 10 percent in corporate and financial bonds.

Up to 40 percent can be invested in securities funds and shares, the report added.

"The news gave the market a psychological boost, because recently the accelerated pace of fund-raising activities has weighed on investor morale," said Tiantong Securities analyst Jiang Feng.

Investors have been jittery that a flood of initial public offerings and a large scale sell-off of state-owned shares will severely dilute market liquidity.

The government owns around 70 percent of the shares in China's listed companies but wants to whittle down its stake in coming years.

Pension Fund Liberalization Needed

China's pension funds should be allowed to enter the stock market, an official report said Thursday. This would bring bigger gains for deficit-stricken pension funds and nurture the growth of institutional investors.

The report, jointly released by the Ministry of Labor and Social Security and Boshi Fund Management Co. Thursday in Beijing, suggested that as much as 15 percent of pension funds could be invested in stocks.

Investment in treasury bonds and corporate bonds could each account for another 5 percent. There could be more investment products for pension funds in the future, including investment in property and overseas financial markets, though markets are not yet ready, the report said.

The package of suggestions will be an important reference point for the government when designing new policies to better manage pension funds, said Vice-Minister of Labor Wang Dongjin, though no exact timetable was given for the reforms.

The changes are part of efforts by the Chinese government to commercialize the management of pension funds, which cover more than 100 million Chinese people.

Sales of State Shares to Be Announced Soon

Part of Pension May Be Invested in Securities Investment Fund