China's social security fund increases tenfold amid inflation pressure

08:16, May 20, 2011      

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Total assets of China's social security fund increased nearly tenfold over the past 10 years, as the government strives to keep high investment returns amid the country's high inflation.

The fund's total assets rose to 856.69 billion yuan (about 131.7 billion U.S. dollars) in 2010, up from 80.51 billion yuan in 2001, the National Council for Social Security Fund (NCSSF) announced Thursday.

This year the fund gained 32.12 billion yuan from equity investment with a yield of 4.23 percent, according to the NCSSF annual report.

By the end of 2010, total equity investment returns stood at 277.26 billion yuan, marking a 9.17-percent annual yield over the past ten years, 6.77 percentage points higher than the average inflation, the report indicated.

The NCSSF, which was launched in August 2000 with a mission to preserve and increase the value of the country's social security fund, was designed to solve the challenges of an aging population and serve as a coffer for future social security expenditures.

NCSSF chairman Dai Xianglong expects the total assets of the fund to reach 1 trillion yuan by the year's end and 1.5 trillion yuan by 2015 through sounder and refined management.


The fund has four primary capital sources: stock rights allocated from state-owned shares; a public welfare fund; and investment returns and funds earmarked by the government, according to the report.

It also plans to raise money through channels such as the state capital management budget and the profits of state-owned enterprises during the country's 12th Five-Year Plan (2011-2015) period, the report said.

The fund will increase by least 100 billion yuan in investments in 2011, fueled by the steady growth of its capital, Dai said.

The NCSSF currently allocates 45 percent of its capital in fixed income investments such as treasury and corporate bonds, 30 percent in stocks, and 25 percent in private equity (PE) funds and other sectors.

"We will invest more in fixed income products and PEs and increase overseas investments as well this year," he said.

Currently, the NCSSF can only buy stocks and bonds for overseas investment, which accounts for 7 percent of its total investment.

The NCSSF is also making efforts to improve its investment management by developing new investment channels. In January, it signed an agreement with Nanjing, the capital city of Jiangsu Province, to provide a trust loan of three billion yuan for the city's affordable housing projects.

Trust loans are regarded as a much safer financial product compared with other loans.

In addition, the NCSSF plans to invest in local state-owned enterprises with growth potential as its investments can only go to state-owned enterprises.


During the global financial crisis, the fund suffered 42.2 billion yuan of floating losses on the country's stock market in 2009. In order to control risks, the fund began to seek investment opportunities in PEs.

By the end of 2010, the fund had invested in eight PE funds and earned a total of 34.94 million yuan, according to the report.

Dai said that the scale of the fund's PE investment will hit 21 billion yuan this year.

Under rules created by the Ministry of Finance, the NCSSF's investment in PEs cannot be more than 10 percent of its total assets, meaning that the fund could invest about 85 billion yuan in PEs if calculated by its current assets value.

The NCSSF is also eying overseas PE investment. It has previously submitted applications to the Ministry of Finance and now is negotiating with three overseas PE institutions.

But insiders warn of risks in PE investment, as it is still relatively new in China, and suggested that the fund should steadily launch its investments and institute tougher risk control measures.

"We will strengthen the capability to identify, measure and ward off potential risks, while seizing investment opportunities to maximize the fund's earnings," Dai said during a board meeting in March.

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