Hu Kaihong(host):

Ladies and gentlemen, good morning. Welcome to the policy briefing of the State Council’s Information Office. The State Council recently released a regulation on pension fund investment. It has attracted widespread attention, sparking discussions online. In order to help the public better understand the contents of the regulation, I’m honored to have You Jun, vice-minister of human resources and social security, and Yu Weiping, vice-minister of finance, to make an introduction and answer your questions. Vice-Minister You, please.

You Jun:

Friends from the media, good morning. I’m glad to join Vice-Minister Yu to introduce the investment and operation of pension funds. The latest regulation has been approved by the State Council and published on Aug 17. Now I’d like to make a brief introduction on the investment of the pension funds.

You Jun:

It is understood that pension funds are the lifeline of the public and an important public fund. As China’s social security system improves and starts to cover both urban and rural residents, the amount of pension funds is increasing too. Standing rules require that pension funds can only be used in bank deposits and national debt, which have ensured the security of the capital. It hence requires us to modify the investment policy on pension funds to allow the capital to be invested in a more profitable way, while continuing to ensure its security. It will make our pension system more attractive and encourage the initiative of the public. Meanwhile, it can also broaden sources of the funds and ensure a sustainable, healthy development of the pension funds.

You Jun:

The top leadership has paid close attention to the running of pension funds. After the leadership decided to strengthen the management and supervision of social security funds and make the investment of the funds more market-oriented and diversified, multiple government departments, including the Ministry of Human Resources and Social Security, the Ministry of Finance and other related departments, have conducted thorough investigations. The departments worked out a draft regulation after looking into domestic and overseas experience, and they solicited public opinion from June 29 to July 13. Based on these opinions, we revised the draft and the draft has been approved and released on Aug 17 by the State Council. It should be noted that the regulation is a major reform measure to improve China’s social security system and is also a move that fits the interests of the people and boosts Chinese economic development. Next, the Ministry of Human Resources and Social Security will work together with the Ministry of Finance to carry out measures required in the regulation and preserve the value of the funds against appreciation under the premise of fund security.

Now Vice-Minister Yu and I are ready to take the questions.

Hu Kaihong(host):

Thank you Vice-Minister You. Please state your media organization before raising a question.

China National Radio:

I have a question for Mister Yu. First, about the investment. Is the country gathering all the money from the localities to the central government for concentrated investment? Second, is there any detailed timetable about the funds entering the market and could you tell us the amount of the first batch? Third, how to tackle possible challenges brought by unwillingness among the localities to hand in the money?

Yu Weiping:

Thanks for the questions. The pension is collected from the country, the employers and the individuals. On the country’s part, the treasury provides support by introducing preferential taxation policies, and it provides subsidies when the pension fund is faced with insufficiency. On the treasury’s part, it has consistently optimized the structure of the expenditures in recent years, and support has been reinforced for the pension fund. According to the data of the final accounting of the social insurance fund, the subsidies provided by treasury bodies of various levels to the pension fund amount to 2.56 trillion yuan altogether from 1998-2014, which accounts for 72 percent of the cash surplus of the insurance as of the end of 2014.

Yu Weiping:

As for the concentrated management, so far the pension fund has not realized nationwide overall planning, and conditions vary among the provincial administrations. Some of the funds are managed at the provincial level while some others are taken care of at the city or county level. But I want to clarify that the all the funds - no matter planned by the province, or the city or the county - should be hosted by the specially prepared treasury accounts, and there are separate channels for revenues and expenditures.

Yu Weiping:

About the timetable. Will the funds be gathered immediately? Surely it will take a period of time for collecting them from the localities, level by level. Currently, on the basis of relevant regulations stated by the investment regulation, we are studying and formulating methods to realize entrusted investments, and detailed procedures of transferring the capital among the central government, localities and the entrusted organizations will be decided. We are busy formulating such tightly regulated procedures in order to boost the efficiency of concentrating as well as the safety of the funds. Also, as deployed to the State Council, we are studying and drafting documents and auxiliary policies related to the investment regulations, organizing and undertaking the preliminary stage missions in order to initiate investing operations at an early date after the funds concentration has been completed.

Yu Weiping:

About the readiness of the localities. As introduced by Minister You, the aim of the investment methods is to ensure an increase in the value of the funds, see extra profits, further boost the vitality of the funds and make sure the pension is given efficiently with the due amount. The country supports the investing operations of the old-age insurance funds, and preferential taxation policies will be offered to the investments. Also, the entrusted agencies and investing institutions in the market will be selected with scrutiny, and risk controls and supervision will be boosted. Therefore, the investment benefits are generally ensured. I believe that the localities, after fully understanding this, are willing to hand in the funds to the central government for concentrated investing operations. At the initial stage, some provinces have entrusted their provincial pension funds to the National Social Security Fund Council for investing operations. Of course considerations may vary among the localities. As long as they see the potential benefits for preserving and increasing the value of their funds, the localities will be proactive in this regard.

Yu Weiping:

About the total amount of the funds. I can tell you that as of the end of 2014, the national pension fund achieved an accumulative surplus of 3.5 trillion yuan, among which the urban workers’ pension fund accounts for 3.18 trillion yuan, and the urban and rural residents’ pension funds account for 380 billion yuan. A part of the surplus will be used to pay for the pensions of due date, while another part of a certain proportion should be reserved for further payment, so not all the funds will be dedicated to investment. The investment methods have required that the province-level governments decide upon the detailed quota for entrusted investment after capital for payment of a certain proportion is reserved in accordance with the accumulative surplus of the local pension fund. Therefore, the total amount of the capital available for investment may be decided in accordance with the actual conditions and readiness of the provinces.

You Jun:

Minister Yu has already made the point very clear. First, the accumulative surplus was 3.5 trillion as of the end of 2014, and conditions vary among the localities as a structural disparity remains. Second, enough reserve for the due payments should be guaranteed. According to our evaluation, the total funds available for investment are about 2 trillion yuan. Of course the figure is not necessarily the accurate one, and the portion available for investment will be further expanded if the total scale of the fund continues increasing. But as Minister Yu has said, there is an issue regarding the structure of the fund, and the whole process will be finalized in different steps.

China News Service:

I have a question for Minister You about the safety of the pension funds, an issue that is of deep public concern.

Do you have any specific measures to ensure the safety of the net assets? What kind of coping mechanism do you have if any investment risk occurs?

You Jun:

Thank you. The question you ask is very important, as the pension funds involve the interests of hundreds of millions of people.

First, A priority of the investment regulation, if you take a look at it, is to ensure fund safety while seeking increased value. It has stipulated diversified investment principals and defined 20-plus types of products that the funds could invest in. That is to say, we couldn’t “put all our eggs in one basket”. The products, according to their risk levels, can be divided as safe assets and risky assets. The former refers to products with relatively low but constant returns, such as bank deposit and bonds; the latter refers to high-profit but risky products such as stocks. At the same time, as Minister Yu has said, we have some preferential policies for the pension funds to invest in major national projects and the reorganization of State-owned enterprises that plan to be listed. Therefore, as long as we can control the proportion of risky assets, which is no more than 30 percent as stipulated in the regulation, we will be able to diversify risks and maintain long-term and constant returns.

Second, we should not doubt the safety of funds because of some short-term and temporary fluctuations. The products, defined in the regulation, will have fluctuations in prices, and the net value of the pension funds will also fluctuate with the prices. When we decide the funds are safe or not, we should check whether the entire returns are positive after the contract expires, instead of the returns at any one moment.

Third, the regulations also demanded loan-loss provisions to be set aside. Entrusted organizations will allocate 1 percent of their annual net profits as such reserves while the investment management institutions should allocate 20 percent of their management fees as loan-loss provisions. The money will be specially used to compensate for possible losses on investment. Entrusted organizations and investment management institutions that cause losses to the funds for violation of rules should be held accountable in law and make compensation.

Fourth, we will choose proven expertise and qualified institutions to be entrusted and make investments. At present, we have chosen the National Council for Social Security Fund as the entrusted organization, and made explicit requirements for the choice of fund custody and investment management institutions. They should have experience of investing and managing the national social security fund and enterprise annuities, have good management performance and a solid social reputation. Statistics in recent years showed that the average annual profits of the national social security fund was 8.36 percent and that of enterprise annuity was 7.87 percent. We have reason to believe that the pension funds would gain good profits and be safe if they are run by these institutions.

Fifth, we should also enhance supervision. The funds’ market-oriented operations don’t mean fewer responsibilities of the government. Instead, market supervision will be the government’s routine work. We shall formulate clear-cut regulations over all procedures including trusteeship, investment and supervision, to regulate the behaviors of all departments and institutions. The Ministry of Human Resources and Social Security and the Ministry of Finance will be responsible for comprehensive supervision over the operation of the whole funds, while the People’s Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission will conduct their own duties and coordinate with each other. The entrusted organizations, fund custodies and investment organizations are responsible for setting up a rigid system to prevent the occurrence of risks, and ensuring a regular release of information.

I think we are able to increase the value of pension funds while ensuring their safety, through the above-mentioned measures. We are confident about it. Thank you.

China Daily:

I wonder what kind of guarantee can the Ministry of Finance provide for the running and investment of pensions? Second, it is speculated that it might need one-and-a-half years for the pensions to get into the market. How do you view the figure, is it accurate? Is it possible that the first amount of money can enter the market within the year?

Yu Weiping:

For financial support, first we will strengthen supervision of the special financial accounts to improve efficiency and ensure security of the funds. Second, we will work with the Ministry of Labor and Social Security to beef up supervision and checking. Third, we will have real-time monitoring. All relevant issues are specified in the regulations, and the job of the Ministry of Finance is to implement them.

Yu Weiping:

About the timing, I have said that we need a guideline and we will make it as soon as possible. Actually it needs time to centralize all pensions around the country, and after that the timing of investment will have to follow the investment strategy of the authorities. But I think it won’t be very far away. Thank you.

Phoenix Satellite Television:

I have a question for Minister You, which is about investing pensions into the stock market. Currently there is a limit for pensions invested in the stock market of no more than 30 percent. Since there has been great fluctuations in the stock market recently, will this affect the time of pensions entering the stock market?

You Jun:

Many people may be concerned about the issue you raised, but we are concerned more about security and maintaining and increasing the value of the pension. According to the regulation, there are various kinds of pension investment measures based on the diversification principle. As a mature investment product, shares can fluctuate over a short period. However, pensions seek long-term and stable benefits - we should take that into consideration when making policy. Market-oriented pension investments play a positive role in the development of the economy and capital markets. It is not the pension’s function or responsibility to save the stock market. Once the pension enters trusts and investment institutions, it will be operated according to market conditions without government interfering. Therefore the time you mentioned will be decided according to the market situation. Thank you!

Xinhua News Agency:

My question is for Minister Yu. Without subsidies by the government, the shortfall in pension this year would have hit 300 billion yuan. The government is going to reduce the shortfall by replenishing the pension with State-owned assets. Could you reveal how things are going? And is there a specific goal to achieve by the end of this year?

Also, is there a timetable or roadmap for integrating the collection, management and issuance of pensions, which is now carried out by different regional authorities in isolation? Will these isolated pension programs be integrated into one in each province or even one for the whole country within a certain time?

You Jun:

As for your question of integrating pension programs, by now most of the provinces have set up an integrated pension system of their own. The goal in the next stage is to set up an integrated national pension system. We are working with the Ministry of Finance and other ministries to formulate a plan and implement it as soon as possible. Setting up an integrated national pension system is an important task in deepening reform this year.

China Radio International:

Minister You, you mentioned that the National Council for Social Security Funds has been selected as the trustee. Is there any possibility that other institutions will also be chosen as a trustee. If so, what is the selection standard? Furthermore, what is the investment standard?

You Jun:

The regulation has made it clear that the trustee should be a pension management institution established by the State and authorized by the State Council. We chose the National Council for Social Security Funds as a trustee because of the need to start the investment and operation of pensions as soon as possible.

The National Council for Social Security Funds, which has seen good results in recent years with an 8.36 percent annual rate of return, has a strong team and rich experience in fund operations.

So, the National Council for Social Security Funds will be helpful in quickly initiating pension investment.

For the question of whether there will be other institutions named as a trustee, I can only say it depends on further study.

Currently, the National Council for Social Security Funds operate a massive amount of capital. And the pension fund, which has an independent management and accounting and centralized operations, is also huge.

So, the decision will be made after a period of operations by the National Council for Social Security Funds and also after the research and study by relevant departments. Thank you!

China Business News:

My question is for Minister You. Source say Jiangsu and Shandong will become the first two provinces to invest their pension funds in the stock market. Could you confirm? If it’s not the case, which provinces will be the first to invest their pension funds in the stock market?

You Jun:

Shandong province has entrusted the National Council for Social Security Fund with part of its pension funds to manage the investment. We haven’t heard similar news from Jiangsu province.

As Vice-Minister Yu mentioned, the regulations on the investment of pension funds will be followed by a series of specific plans and regulations detailing how the investment should be managed. We are speeding up the formulation of these plans and regulations.

Different regions entrust the National Council for Social Security with their pension funds at different times. The government is not able to set a timetable for when these funds will enter the stock market, as it’s the authorities overseeing the stock market that decide when and how much of the pension funds will enter the market.

China Central Television:

We understand that the safety of the pension fund is extremely important. Can the net assets be ensured during major turbulences in the capital market?

You Jun:

I’ve answered the question earlier. First, the fund sticks to the diversified investment pattern and restricts the maximum proportion of investments in stocks and equities to 30 percent of total net assets. The other channels are bank deposits, bonds and some key governmental projects and construction, which are predicted to bring stable incomes. As long as we have proper control of the weight of the risk assets and together with the above mentioned measures, we believe the pension fund will gain more value and net assets will be ensured.

Hu kaihong (host):

That is the end of today’s policy briefing. Thank you, two ministers, thank you friends from the press.