Caixin
Dec 31, 2020 04:23 AM
FINANCE

China Clears Annuity Funds to Pour $45.9 Billion More Into Stocks

China has been actively seeking to boost investment returns for the pension system to cope with a looming pension shortfall
China has been actively seeking to boost investment returns for the pension system to cope with a looming pension shortfall

China will allow more of the country’s annuity funds to be invested in the equity market, unleashing as much as 300 billion yuan ($45.9 billion) of additional long-term money into the capital markets of the mainland and, for the first time, Hong Kong.

The Ministry of Human Resources and Social Security increased the proportion of the country’s annuity funds authorized for investment in equity assets to as much as 40% from 30%, the ministry said Wednesday in a policy circular.

In recent years China has been actively seeking to boost investment returns for the pension system to cope with a looming pension shortfall caused by a rapidly aging society and a shrinking workforce.

Annuity funds were launched in 2004 as supplements to China’s national pension plan, covering 66 million employees of companies and government-backed institutions. As of end September, the funds accumulated 3.1 trillion yuan ($475 billion) of assets from contributions by employees and employers.

Under the new policy, annuity funds, which were previously limited to mainland stocks, will be allowed to trade Hong Kong-listed shares through the stock connect programs linking with the Shanghai and Shenzhen exchanges, according to the circular. The move will support Hong Kong’s financial market while serving as a test for the funds to diversify investment portfolios globally, the ministry said.

The new policy also expands the annuity funds’ investment scope to include preference shares, asset-backed securities, negotiable certificates of deposit, perpetual bonds and Treasury bond futures.

Meanwhile, some controversial assets such as investment-type insurance policies and wealth management products that may be affected by new policy changes will be removed from the annuity funds’ investment options, the ministry said.

In 2019, Chinese pension funds entrusted for investment by the National Council for Social Security Fund achieved a 9.03% return, the highest since 2016. Enterprise annuity funds, part of the annuity funds covering corporate employees, booked average annual returns of 7.07% between 2007 and 2019.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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