BEIJING — Seven Chinese provincial-level regions, including Beijing and Shanghai, have started entrusting their pension funds to the National Council for Social Security Fund (NCSSF) for investment.
A total of 360 billion yuan ($52.33 billion) is being transferred from scattered bank accounts operated by local authorities to the NCSSF for centralized asset management, the Economic Information Daily reported on Feb 21.
The move is the latest effort by China to improve returns of its vast locally managed pension funds, which have traditionally been parked in banks or used to purchase treasury bills.
Unlike governments, the NCSSF is allowed to invest in a variety of financial products, including bonds and equities. The fund saw a 15-percent investment return in 2015, with total entrusted assets worth 1.9 trillion yuan.
Brokerage GF Securities estimates around 2 trillion yuan in pension funds nationwide could be used for investment, about half of the total balance of the country’s pension fund accounts as of the end of last year.
Wang Zhongmin, vice chairman of the NCSSF, said the specific amount of available funds still cannot be determined due to uncertainties from local authorities.
The State Council issued guidelines to loosen investment rules on pension funds in the summer of 2015, greenlighting their entry into the stock market, which had been suffering from plunges. The move has been closely watched by the capital market, which calls for more long-term institutional investors to stabilize the market.
The government’s priority remains stable asset growth, avoiding bold investments as the proportion of pension funds in stock-related investments is limited to 30 percent.
“Liquidity and safety should still be first,” said Dong Dengxin, a financial researcher with Wuhan University, who advised a cap of 10 to 15 percent for equity investment during the preliminary stage.
Rather than giving an immediate boost, analysts believe pension funds will bring long-term benefits to China’s A-share market, optimizing the structure of investors and curbing market volatility.