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--Repeated calls for the national pension fund to beinvested in the stock market have become a topic of heateddiscussion among deputies to the National People's Congress (NPC)and members of the Chinese People's Political ConsultativeConference (CPPCC). Surveys before the two sessions reveal that theissue is also a major concern for the public. Many have questioned the wisdom of investing in the stock marketconsidering its poor performance in the past, reports China Daily,pointing out that by the end of 2011 the Shanghai Composite Indexhad fallen to less than its value a decade ago. Investing the pension fund in the stock market would be akin to"falling into water," the newspaper quotes Ye Tan, a well-knowneconomic commentator. Ye added that China's stock market has been embroiled in variousscandals and is not likely to yield good results, so the pensionfund must not be invested now. Yet Guo Shuqing, head of the China Securities RegulatoryCommission, publicly stated that such an investment would be"beneficial to the country, the capital market and every citizen." Since the pension fund is supposedly "lifesaving money" for theelderly, it is reasonable for the public to be concerned. But whatthe public doesn't realize is that the current pension system hasalready resulted in a huge loss, and that loss is growing largerevery day, points out China Daily. Currently, China's national pension fund is only allowed to bedeposited in banks or used to purchase treasury bonds, and theinterest earned is comparatively low. After subtracting theinflation rate, average interest rates on personal-account fundsinvested in one-year bank deposits, three-year bank deposits andthree-year treasury bonds are -0.11 percent, 0.73 percent and 1.25percent respectively. Zheng Bingwen, head of the Global Pension Fund Research Center atthe Chinese Academy of Social Sciences, revealed to China Dailythat the average rate of return for the pension fund has been lessthan 2 percent in the past 12 years, even lower than the averageCPI over the same period, which means the fund has devalued day byday. According to Zheng's calculations, the total loss from 1997 to 2010was more than 600 billion yuan (US$95 billion), making reforms ofthe pension fund's investment channels an urgent matter. "Nearly all pension funds in the world invest in the stock market.I think it is acceptable to allocate part of the pension fundsmanaged by local governments to buy stocks. This will help preserveand increase the value of the funds," Dai Xianglong, chairman ofthe National Council for the Social Security Fund (NCSSF), said atthe International Social Securities Forum held in Beijing inDecember last year. Local pension funds could invest less than 40 percent of assetsinto the stock market, Dai advised, as the proportions in foreigncountries usually range from 20 to 50 percent. But he also warned that the investments should be long-term andvalue-oriented, as short-term speculation is usually quite risky. China Daily cites an article by Warrent Buffet, who studied relatedstatistics from almost 100 years that led him to the conclusionthat the U.S. stock market's long-term rate of return is 6-7percent a year. The pension fund is a long-term fund, which can overcome the stockmarket's short-term volatility, analyzes the newspaper, adding thatChina's social security fund has attained an annual rate of returnas high as 9.17 percent in the past 11 years, mainly due to itssuccessful operation in the stock market. Statistics reveal that the national social security fund, which hasvarious choices in investment, had achieved a total return oninvestment of 244.8 billion yuan (US$39 billion) as of 2010, whileonly 31.8 billion yuan (US$5 billion) in pension fund assets hadbeen invested in securities by then, yielding less than 2 percent ayear. Chen Liang, with the Ministry of Human Resources and SocialSecurities (or MHRSS, the department in charge of the pensionfund) pointed out that the operation of China's pension fundshould absorb experiences in managing the national social securityfund to increase investment income and avoid devaluation. Yet the ministry added that there are no timetables for the pensionfund to enter the capital market, since even if the public acceptsthe idea, operation of the fund still faces many obstacles. In China, little is done to manage the country's pension fund. Oncecontributions have been made, basically no one is responsible forensuring that returns even exceed the inflation rate; and there areno central government agencies designated to operate the fund. An all-round management regulation of the pension fund should beintroduced based on an agreement between all five parties involved,namely the Ministry of Finance, the MHRSS, the NCSSF, the ChinaSecurities Regulatory Commission and local governments. However,different standpoints and interests make the policymaking procedurecomplicated, says China Daily. Guo Shuqing called on China's investment banks to design productsthat would benefit pension fund investment in the securitiesmarket. Hua Jianmin, vice-chairman of the Standing Committee of the 11thNational People's Congress, told China Daily that the nation shouldgive its pension fund priority in selecting investmentopportunities to ensure the fund's safety. "Attention should be given to helping the pension fund retainvalue. When we see good investment opportunities, we should firstconsider the pension fund," he noted. Guo also proposed a specialized institution to manage localsecurity funds, with efforts focused on encouraging the promotionof venture capital and private equity investment to targetlong-term returns. The e-commerce company in China offers quality products such as Handheld RFID Readers Manufacturer , Product Catalogue Manufacturer, and more. For more , please visit GIS Terminal today!
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