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Boon to people

(China Daily)
Updated: 2009-06-23 07:51

The central government's decision to transfer State-owned shares to the National Social Security Fund (NSSF) will enable Chinese consumers to worry less about their pension funds and spend more to hasten the change of China's growth model.

A regulation issued last weekend requires that State-owned companies which sold shares after the structural reform in 2005, or plan to do so in future, must transfer State-owned equities equivalent to 10 percent of their initial public offerings (IPOs) to the NSSF.

Though the government stressed that the move was part of an effort to finance the social security system and the retirement of the aging population, the press has overwhelmingly interpreted it as a evidence that the authorities are trying to boost investors' confidence in the face of the lifting of a nine-month IPO suspension.

In extending the period of lock up by another three years for those State shares transferred to the national pension fund, the new plan will somewhat cushion the market from a supply shock.

With the lock-up periods for a large amount of non-tradable state enterprise shares expiring this year, it is estimated that the amount of tradable shares in the Shanghai and Shenzhen markets could surge by up to 50 per cent. And, the coming flood of IPOs will put extra pressure on the domestic market, which has rebounded so far so well this year.

That the share-transfer plan can shore up the stock market at this juncture does not mean its long-term significance for the national economy should be eclipsed by its short-term effect from the market's perspective.

Given the very importance of the national pension fund for the country's sustained growth in future, it is vital to examine the new policy in line with the financial health of the national social security system.

As the most populous country in the world, China established a national social security fund in 2000 to pay out pensions. With total assets of only about 500 billion yuan ($73.1 billion) at the end of 2007, the national pension fund needs to be rapidly increased to between 4 and 5 trillion yuan in 30 years when the country's elderly population will peak.

The new plan will not only add shares worth of 63.9 billion yuan (US$9.3 billion) to the national pension fund but also open a new way to continuously narrow the pension gap.

Among all the measures the Chinese government has taken to boost consumption as a key growth engine, such a direct boost to the national pension scheme may be most needed. Only when Chinese consumers do not have to save heavily for an uncertain future can they become the real driving force behind the economy

(China Daily 06/23/2009 page8)