Caixin
Jun 27, 2019 09:57 PM
ECONOMY

State Firms Dragging Their Feet on Measure to Head Off Pension Shortfall

In 2018, China’s pension funds collected 3.7 trillion yuan from companies and handed out 3.2 trillion yuan in payments, according to official data. Photo: VCG
In 2018, China’s pension funds collected 3.7 trillion yuan from companies and handed out 3.2 trillion yuan in payments, according to official data. Photo: VCG

China has been making slow progress on transferring part of state-owned enterprises’ (SOE) equity to bolster the nation’s pension funds, a government policy introduced in 2017 to head off a pension fund shortfall.

As of the end of March, 23 state firms administered by the central government had made the transfers with equity worth a total of 113.2 billion yuan ($16.5 billion) to the National Social Security Fund, a fraction of the target, the National Audit Office, the country’s top auditor, said Wednesday in a report (link in Chinese). The fund manages state-owned equity and uses money from the central government to make investments in a bid to generate income to make up for the country’s pension shortfall.

On the local level, only four provincial governments had started the transfer process by March, the auditor said. It didn’t specify which provinces.

In November 2017, the State Council, or China’s cabinet, released a policy document asking five to seven centrally-administered SOEs, including two financial firms, and several local SOEs to begin transferring 10% of their state-owned equity to the social security fund that year. More SOEs were supposed to follow.

However, the progress has been disappointing. Lou Jiwei, a former finance minister, told Caixin in March that the pace of SOE asset transfers was “too slow,” adding that the policy is supposed to ameliorate the widening gap between the pension fund’s revenue and expenditure. The latter is growing as the population ages and pension payouts improve.

In 2018, China’s pension funds collected 3.7 trillion yuan from companies and handed out 3.2 trillion yuan in payments, official data showed (link in Chinese). At the end of that year, the funds had a balance of about 4.8 trillion yuan.

In the first five months this year, China’s SOEs pocketed about 23.8 trillion yuan in revenue, up 7.7% year-on-year, official data showed (link in Chinese). Their combined profit expanded 8.7% year-on-year to nearly 1.4 trillion yuan in the same period.

In addition, Beijing has pledged to reduce companies’ pension contributions amid a slowing economy, according to the government work report delivered by Premier Li Keqiang in March. The report said that the government would push ahead with the SOE equity transfer policy.

In recent years, policymakers have stepped up efforts to shore up the pension system and strengthen the entire social security network. Along with equity transfers, they’ve also promoted commercial pension accounts for individuals to save for retirement.

Contact reporter Timmy Shen (hongmingshen@caixin.com, Twitter:@timmyhmshen

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