SOEs may aid funding of nation's pension system

Cash-rich State-owned enterprises have a key role to play in ensuring the nation's pension system can make ends meet, a leading official from China's mutual fund industry said on Thursday.

Sun Jie, chairman of the Asset Management Association of China, called for more funds to be transferred to the pension system from SOEs' profits.

"The target is to enrich pension fund resources and upgrade investment efficiency," he said.

The central bank has suggested allowing foreign enterprises to issue corporate bonds in the mainland market, a way to broaden investment channels for the funds, according to Jin Zhongxia, director-general of research institute of the People's Bank of China.

"The next step is to encourage outflows of Chinese capital in terms of purchasing foreign equities. A feasible way is to build the trading platform of renminbi-denominated bonds for foreign issuers to achieve equilibrium in two-way capital flows," Jin said.

"It will be a large step to draw back offshore currency and rebalance the capital account," he added.

Discussion about pension fund reforms has been ongoing since former National Social Security Fund chairman Dai Xianglong admitted that there is "definitely" a deficit in the account.

The basic pension fund for urban workers is 2.3 trillion yuan ($371.5 billion), together with the social security fund and the State's complementary pension, the total is less than 5 percent of GDP, said Dai. "It is impossible to rely solely on the pension fund system."

Dai said that the personal accounts of urban residents may be filled by the end of 2020, by increasing the fiscal allocation and issuing special social security bonds.

"These should be guaranteed by provincial governments, with a promise of higher returns than annual inflation," said Dai.

According to a report from the Chinese Academy of Social Sciences, by the end of 2011, the basic urban pension fund account held a total of 2.49 trillion yuan, but the disposable value was 270 billion yuan, which means 2.21 trillion yuan is needed to fill the hole.

Analysts have suggested that 20 percent of the submitted net profits of State-owned enterprises could be transferred to replenish the pension fund account.

Data from the Ministry of Finance showed that in 2012, State-owned enterprises had total profits of 2.2 trillion yuan, and about 80 billion yuan was handed over to the government after taxation.

This means 16 billion yuan could be transferred to the pension fund account.

A more diversified and flexible asset management industry, based on the amended Securities Investment Fund Law, would improve the pension fund system, said Sun.

"The further opening of China's capital market will attract more experienced global institutional investors to participate in the wealth management sector," the fund association chief said.

The amended law will take effect on June 1. It will encourage the emergence of creative wealth management products and attract funds out of bank deposits, analysts said.

The China Securities Regulatory Commission confirmed last week that reform of the wealth management sector would continue, including injecting pension funds and other long-term investment funds into the equity market.

"The innovation of wealth management companies will accelerate thanks to more supportive policies," a CSRC official said.