Caixin
Sep 26, 2019 08:04 PM
FINANCE

Finance Ministry to Transfer $16 Billion in Equities to Pension-Shortfall Fund

On Sept. 25, two large state-controlled banks announced that China's Ministry of Finance would transfer 10% of its equity in them to the national social security fund. Photo: IC Photo
On Sept. 25, two large state-controlled banks announced that China's Ministry of Finance would transfer 10% of its equity in them to the national social security fund. Photo: IC Photo

The Ministry of Finance will transfer around 115 billion yuan ($16.1 billion) in state assets to the national social security fund, in the government’s latest effort to stave off a looming pension shortfall.

The transfer shows how keen the central government is to move forward on the policy, dating back to 2017 (link in Chinese), which aims to bolster China’s pension funds as the country’s population rapidly ages.

The ministry will transfer 10% of its shares of Industrial and Commercial Bank of China Ltd. (ICBC) and Agricultural Bank of China Ltd. (ABC), two of the country’s largest state-owned banks by assets, to the National Council for Social Security Fund, the government body that manages the national social security fund, according to separate statements from each bank. The banks’ shares being transferred were worth around 115 billion yuan at Wednesday’s closing prices. Under the plan, the ministry is also supposed to transfer a portion of its shares of other state-owned financial institutions to the fund.

The national social security fund is mainly charged with making up for pension shortfalls, and is separate from the country’s local government-managed social insurance funds. Dividends from equity in state-owned enterprises (SOEs) are its main source of funding.

Last week, the government urged SOEs and their state shareholders not to drag their feet on the mandated transfers, some of which are supposed to be completed by the end of this year.

Caixin has learned that another state shareholder of several large state-owned commercial banks, Central Huijin Investment Ltd., will also hand over 10% of its shares of the banks to the social security fund. Once the two shareholders complete the equity transfers for all the “Big Five” state-owned commercial lenders — each owns stakes in some of the lenders — the fund would receive more than 410 billion yuan in stock, according to Caixin calculations based on Wednesday’s closing prices of the banks’ Shanghai-listed shares. Central Huijin is a company mandated to act on behalf of the state as an investor in major financial SOEs.

The central government has required state shareholders to donate 10% of their equity in large and midsize SOEs that are managed both by the central and local governments. But progress in implementing the policy has been slow, according to a June report (link in Chinese) from the National Audit Office.

In the document (link in Chinese) released last week, the government set a timetable for implementing the transfers. SOEs managed by the central government are supposed to have transferred 10% of their state-owned equity by the end of 2019, though the deadline can be extended to the end of 2020 if companies “do really have difficulties.”

 Read more 
In Depth: China’s Social Security Balancing Act

The threat of a pension shortfall is looming in China. At the end of 2018, its pension funds for urban workers had a balance of about 4.8 trillion yuan (link in Chinese). But a report by the Chinese Academy of Social Sciences, a government think tank, predicted that the surplus will fall to zero in 2035 after peaking in 2027 at 6.99 trillion yuan, taking into account government subsidies.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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