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Pension fund permitted to enter capital market

Pension fund permitted to enter capital market

Updated: 2012-03-21 21:36

By Gao Changxin (

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SHANGHAI - A Chinese province won permission on Wednesday to try out investing money from its largely unmanaged pension into the country's capital markets.

Analysts said that change could help the funds maintain their value and could have far-reaching consequences for domestic stock markets.

With the approval of the State Council, China's cabinet, the southern province of Guangdong has taken 100 billion yuan ($15.8 billion) from its pension funds and entrusted them to the National Council for Social Security Fund for two years. The council now manages social security funds that are raised from both sales of shares in State-owned companies and from central government grants.

In a statement posted on its website, the council said pension-fund investments will mainly go into fixed-income securities, which are largely risk-free in China, where there is a lack of high-yield bonds.

The assets most likely to be bought are government, commercial and financial bonds, but the National Council for Social Security Fund didn't rule out investing in the stock market. Equity investors in China have long wanted pension funds to invest into the country's stocks markets in the hope that doing so would push those markets out of the doldrums.

The council's rules forbid it from putting more than 40 percent of its investments into equity investments, meaning that up to 40 billion yuan can go into the stock market.

The Shanghai Composite Index, which tracks many Chinese stocks, edged up 0.06 percent to close at 2378.20 points on Wednesday, helping to reverse a 1.38 percent slump on Tuesday.

In Guangdong's case, the National Council for Social Security Fund has said it will shoulder all of the risk that arises from investing the province's pension money into capital markets. It has also promised that Guangdong's rate of return will be no lower than that on a two-year deposit.

The council, which manages about 800 billion yuan, has a record of making sound investments. Over the past decade, it has realized a 9.17 percent annual yield by investing into equities and corporate and government bonds. Its equity investments, which on average make up 19.22 percent of its total assets, have an annualized yield of 18.61 percent, according to data from the council. Those results are better than those obtained by most Chinese mutual funds.

Local media have reported that Guangdong's experiment with investing pension funds could be extended to other parts of the country if it proves successful.