What do you do if you fear your fund managers could squander your money?
Withdraw it! That's precisely what nine out of 10 depositors in China would like
do. But what's the fear all about? Lack of trust! Why? The answer is not
difficult to guess after the two huge public fund scandals in Shanghai and
Chenzhou, Central China's Hunan Province.
Three years ago, it was found Chenzhou's Housing Provident Fund Center
director Li Shubiao had squandered 120 million yuan ($15.5 million) from the
fund on gambling in Macao. In fact, he started misusing the money a full five
years before he was caught.
Last year's scam in Shanghai was triggered by a public
fund scandal, too, in which the local pension fund was illegally "loaned out" to
investment companies. Former Party secretary of Shanghai Chen Liangyu was
sacked, and a probe ordered against him for his role in the financial scam.
Li Shubiao, director of Chenzhou Housing Provident Fund Center, was
sentenced to death in August 2005 for squandering 120 million yuan ($15.5
million) from the fund. Liu Gang
The two scandals, along with lesser-known but equally alarming ones, have
awakened many people with a rude shock. They now think their hard-earned money
is not secure even in the national social security, pension and housing funds.
Nor do they think it's safe in the medical insurance, unemployment insurance,
maternity insurance and poverty relief funds.
Yan Ping is such a person. "I'm desperate to withdraw my housing provident
fund," says the accountant with a carmaker in Changchun, capital of Northeast
China's Jilin Province. Housing provident fund is the reserve fund
co-contributed by employees and employers and combines savings accounts with
subsidized mortgage rates to help employees buy a house.
Yan's desperation is understandable because her provident fund center doesn't
allow employees to withdraw money if they're not buying a house. "I'd rather
keep the money in a bank or invest it in the capital market," she says.
The amount in China's public funds is astronomical. Take only the pension
fund for instance. By the end of 2005, it had a 600-billion-yuan ($77.5 billion)
surplus, which the "protectors-turned-predators" are preying on.
The National Audit Office carried out a nationwide check on pension and
housing provident funds last year, confirming that people's worries were not
unfounded because a whopping 30 billion yuan ($3.9 billion), about 10 percent of
the audited funds, had been misused.
The tumor needs to be removed before it turns malignant and spreads
throughout the funds' body, say leaders and experts. One of them is Zeng Ming, a
National People's Congress (NPC) deputy from Guangdong: "Those funds affect the
livelihood of tens of millions of people, and their use must be strictly
The ministries of finance, construction, and labor and social security have
vowed to protect the housing and pension funds against misuse. But they have
conducted only routine checks and audits without taking steps to fulfil their
Systematic loopholes, analysts say, are to blame for embezzlement of public
funds. Closed-door decision-making, administrative intervention and lack of
effective supervision are the causes of the problem.
Yao Shouzhuo, a 71-year-old member of the Chinese People's Political
Consultative Conference (CPPCC), the country's top policy advisory body, has
done a lot of research on housing provident fund after the Chenzhou scandal in
his home province. To his amazement, he found that fewer than 100 management
staff were handling the country's housing fund, which amounted to a
mind-boggling more than 1 trillion yuan ($129.2 billion) by the end of last May.
"It's practically impossible for such a small number of people to look after
the fund properly," says Yao, who is also an academic at the Chinese Academy of
Sciences. Loose management of the fund and lack of supervision are also worrying
factors for him. The Chenzhou scandal "shows how slack the management regime can
According to a State Council regulation, a 30-member committee including 10
government officials and experts should manage a city's housing provident fund.
Among the other members, 10 each have to be employees' and employers'
representatives. This structure ought to have worked well, but in reality, it
simply doesn't exist in many places, with the policy-making power controlled by
the fund center directors, Yao says.
The loopholes of housing fund management are seen in pension and other public
Gu Xiaorong, a professor of law at the Shanghai Academy of Social Sciences,
says frauds and "casual accounting standards" are serious problems facing public
fund managements. "And they are amplified by the lack of effective supervision."
Administrative intervention is a malady that has contributed to the mess in
public fund management, says Chinese Academy of Social Sciences' pension expert
Zheng Bingwen. He cites the Shanghai scandal as an example to prove his point.
Sun Jie, a professor from the University of International Business and
Economics, puts the "disease" in perspective: "Administrative intervention not
only harms the independent operation of public funds, but also poses a bigger
So what's the prescription? There seems to be a consensus on having a law on
public fund management to ensure the safety of people's money.
Deputies at the annual NPC session last month proposed a social security law
be enacted, prompting NPC Standing Committee Chairman Wu Bangguo to declare that
such a regulation was already on the top legislature's agenda. Shanghai, too, is
mulling such a law, he said.
Sun stresses the proposed law is needed to rule out administrative
intervention in the professional and independent operation of public funds.
Some experts suggest having an even more independent and effective internal
supervision regime in place. "The pension fund management body should not be a
subject of the local government," says Zheng Gongcheng, a professor of labor in
Renmin University of China. "It should be put under the direct leadership of the
central social security regulators."
Also, there have been calls for a supervisory commission independent of the
government that will faithfully ensure a smooth and safe handling of public
funds. Central University of Finance and Economics professor Zhu Fuling says
some provinces do have a pension supervisory commission within the official
pension management regime, but they are far from being independent and
Sun suggests that the public fund management body hire reputed professional
investment institutions to operate the funds in order to avoid investment
losses. Auditing, too, must be strengthened. And apart from official audits,
external and independent accounting firms should be hired to check the funds'
accounts because auditing is part of the supervision process, she says.
Gu wants a mechanism to be put in place to report the details of funds'
operations to lawmakers. A special committee, comprising NPC deputies, experts,
representatives of the government, employers and beneficiaries, can be set up to
run the public funds, he says.
Timely and full disclosure of information on the management and operation of
a public fund is the basic need of effective supervision. "Thorough information,
including the auditing results, must be made known to the public through various
channels, such as the media," says Sun.
Many experts agree with Sun because they say the public has the right to know
what is being done with its money.
(China Daily 04/26/2007 page12)