Pension fund investment should ‘focus on stability’

The investment of China's pension funds into the country's capital markets should prioritize stability over high income, economists and analysts warned yesterday after a senior State pension fund official confirmed Tuesday that up to 40 percent of local retirement funds, worth 800 billion yuan ($126 billion), will eventually go into stocks.

"Though the pilot move could help the funds maintain their value and bolster equities overshadowed by the nation's slowing economy, profits may not be stable in the short term," Fan Min, an equity analyst with Shanghai-based Everbright Securities Co, told the Global Times yesterday.

"It is essential that the country properly manage its pension funds to avoid systemic risks, or some people could lose their pensions," Guo Tianyong, a finance professor at the Central University of Finance and Economics in Beijing, told the Global Times yesterday.

At the moment, only 20 percent of China's social security funds are being used on the stock market and cautious steps will be taken to increase such investments, Dai Xianglong, chairman of the National Council for Social Security Fund (NCSSF), said Tuesday at the Boao Forum for Asia.

"Investments will mainly go into fixed-income securities that are largely risk-free," Dai noted. "The assets most likely to be bought are government, commercial and financial bonds."

But if the council purchases stocks at reasonable prices and insists on long-term investments, "a higher return than that from fixed income instruments is expected, despite more fluctuations," said Zheng Bingwen, head of the Chinese Academy of Social Sciences' Global Pension Fund Research Center.

However, Liu Changping, a social security professor with Wuhan University, said people's pensions should not depend on the performance of listed companies.

"As practiced in a number of developed countries, pension funds can be invested in the real economy or the service industry," Liu told the Global Times yesterday.

"Infrastructure projects and public projects for affordable housing, elderly people and children are usually undertaken by investors and require a lot of money," Liu said.

China's social security fund reached an annual return rate of 18.62 percent in the stock market from June 2003 to the end of last year, NCSSF's latest figures show.

Share earnings amounted to 132.6 billion yuan during that period, accounting for 46 percent of the social security fund's total investment income, the council said.