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China to Invest Some Social Security Cash in Stock Market

By Chen Na

(Beijing) — China’s social security reserve fund will invest a “relatively low” amount of pension funds into the stock market, the chairman of China’s social security fund agency said.

Lou Jiwei, the chairman of the National Council for Social Security Fund (NCSSF), also sought to reassure workers and retirees of the safety of their nest eggs.

Lou said on Wednesday that the government will ensure that 95% of investment of provincial pension funds in financial markets, including deposit insurance products, bonds and stocks, will be profitable.

This means “the proportion of pension funds invested in the stock market is relatively low,” said Lou, a former finance minister.

Lou didn’t specify what percentage he would consider “relatively low.” But some workers and retirees have worried that their pensions might be at risk. In August 2015, the State Council, China’s cabinet, issued a regulation under which the NCSSF could allocate up to 30% of a provincial government’s funds into the stock market.

China’s stock markets have seen bouts of volatility. In an unprecedented stock-market crash two years ago, a third of the value of A-shares on the Shanghai Stock Exchange was lost within one month.

Lou made his remarks on the sidelines of the National People’s Congress, China’s annual parliamentary gathering, which closed on Wednesday.

As China grapples with a rapidly aging population, the government has allowed pension funds to be invested in stocks and other assets in the hope of alleviating the financial burdens on local governments.

China’s old-age dependency ratio, the ratio of people 65 and older to people of working age, has risen from 11.87% in 2004 to 14.33% in 2015. By 2020, the ratio is set to double to 28%, meaning that every 100 people of working age will be needed to support 28 retirees, official data show.

In December, the NCSSF picked 21 investment firms to manage the pension fund money expected to flow into the nation’s stock markets. The money is collected from companies and individuals through payroll deductions at the local level for retirees.

Seven provincial-level governments have agreed to transfer pension funds worth 360 billion yuan ($52 billion) to the social security fund agency for management and investment, of which 137 billion yuan was steered into its account last year, Lou said.

“No one can guarantee that investment only earns money and doesn’t lose money,” Lou said. “We can only guarantee how much percentage of the investment won’t lose money.”

The NCSSF, which oversees 1.5 trillion yuan ($217 million) in social security funds, has generated an average annual return rate of 8.82% since it was founded in 2000.

Contact reporter Chen Na (nachen@caixin.com)

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