Jan 13, 2012 02:10 PM

Pension Funds Inch Closer to Stock Investing

China's struggling securities market is getting a psychological shot in the arm on rising expectations that pension funds may soon provide hundreds of billions of yuan in new investment cash.

Since his appointment in late October, China Securities Regulatory Commission (CSRC) Chairman Guo Shuqing has mentioned several times that he wants to widen securities market access for pension and housing provident funds.

Chen Liang, director of fund oversight at the Ministry of Human Resources and Social Security (MHRSS), said a consensus could be reached soon among key parties involved in pension fund investment talks.

Various government authorities including the CSRC, MHRSS and the National Development and Reform Commission have been discussing since late last year broad issues such as investment target qualifications, government policies, fund operations, market oversight and legal responsibilities, Chen said. They've also discussed opening the stock market to housing provident funds, which companies manage for employees' future housing purchases.

A "breakthrough development" that would let urban pension funds –  government-run social security funds for most workers in China's cities – buy and sell stock was recently reached, said Ji Ning, deputy head of the Employment and Income Distribution Department at the National Development and Reform Commission (NDRC).

Discussions are likewise continuing over whether private insurance schemes for rural workers, few of whom are eligible for social security, will be allowed to follow suit.

Neither securities regulators nor fund managers have set a possible timetable for unleashing the full power of pension funds on the nation's stock exchanges. For now, the government limits market access to certain social security and annuity funds, which can invest up to 40 percent of their assets in securities.

As of the end of 2010, the nation's urban pension funds controlled a cumulative 1.5 trillion yuan, including 857 billion yuan managed by the National Social Security Fund Council. The rural insurance plan, an option for farm workers and other self-employed launched in 2009, held 42.3 billion yuan.

Two Sides

Supporters and skeptics of pension fund stock investing are among those participating in the ongoing negotiations. The former include government officials who say funds would help stabilize the nation's securities markets, which weakened in 2011. Doubters include State Council members who call stock investing too risky for public funds earmarked for retirees.

These and related disagreements have brewed for years while, according to reports, some pension-linked insurance funds have gone ahead and investing in stocks.

The State Council's official position is that any change in pension investment policy should put safety first. The cabinet wants strict supervision of stock trading by pension funds, for example, and has called for tighter laws and regulations before regulators broaden investment channels.

For officials at MHRSS and NDRC, however, a main sticking point has been a disagreement over which government agency would actually invest pensioners' money.

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