| State moves to rein in wayward pension funds |
SHANGHAI, Sept. 26 -- China plans to centralize management of its poorly operated local pension funds as part of the government's effort to stamp out corruption and stem bad investments.
The Ministry of Labor and Social Security may issue rules in the first quarter next year that would take away management of provincial pensions from local governments, Chen Liang, a senior official at the agency, told reporters in a forum on Sunday.
The top watchdog for China's welfare system would instead implement a "market-based mechanism" and entrust the money to independent fund managers, Chen said.
China now has 230 billion yuan (US$28.8 billion) in national-level pensions under its social security system, mainly to fund living and medical expenses for the elderly and the poor.
The country also has about 100 billion yuan in local pension funds, mostly corporate annuities, that have been contributed by companies as employee retirement benefits apart from basic social security.
Provincial and municipal governments currently have the right to decide how those pensions are invested and usually don't employ professional asset managers or custodians.
As a result, a substantial portion of the money is held in investments such as real estate projects and long-term loans without public accountability and subject to low liquidity and high risks.
China's central government has recovered more than 16 billion yuan worth of misused national and provincial welfare funds since 1998, Liu Yongfu, a deputy minister of labor, said in April.
The country also is now conducting a nationwide audit of locally operated pension funds, ordering governments to clear up irregular investment and clamp down on misconduct.
To prevent administrative intervention, the National Council for Social Security, manager of the nation-level welfare money, has selected domestic and foreign-held fund ventures to help it arrange investments over the past two years.
For new corporate annuities, the labor ministry will allow fund managers, rather than local labor and social security bureaus, to take charge of the investments, according to Chen.
China needs to pay pensions for an estimated 200 million people who will retire by 2035, according to World Bank estimates. The pension gap is likely to be as large as 2.5 trillion yuan by then, according to industry analysts.
Regulators are working on a plan to give the national welfare pension fund special approval to trade bonds and invest in money markets abroad, said Xiang Huaicheng, head of the fund's manager, at an economic forum last week.
The welfare fund may invest between US$500 million and US$800 million in capital markets abroad in the fourth quarter, with Hong Kong likely to be the first stop.
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