China is putting the finishing touches on a plan to invest part
of its social security fund in overseas capital markets and will
start to choose new fund managers this year.
"We have not yet finished the legal and institutional
preparations," Xiang Huaicheng, chairman of the National Council
for the Social Security Fund, told a news conference in Beijing on
Friday.
The State Council (China's cabinet) approved the fund's overseas
investment proposal on February 9.
The council, the first domestic institution approved to invest
in overseas capital markets, has yet to conduct further market
analysis, choose fund managers and custodians and get its precise
investment plans approved before starting to trade in overseas
bonds and equities.
Xiang cautioned that all of this will take time, adding that no
timetable was currently available.
Xiang, former minister of finance, did not reveal how much money
the council would be investing overseas, but assured that the
process will take place in a well-prepared and gradual fashion.
The international economic climate and the council's own
capabilities will also determine how fast the fund will enter
overseas markets, he said.
Market sources have estimated that only around 4-5 billion yuan
(US$483-603.8 million) would be allowed to be invested in the Hong
Kong financial market at the initial stage.
"Hong Kong is certainly a preferred market for our overseas
investment, but it will not be the only one," the fund chairman
said.
Council Vice-Chairman Gao Xiqing said it will pick the best fund
managers when it enters a given overseas market.
Overseas companies are the preferred choice, since domestic
companies may not have sufficient overseas expertise.
"We are waiting for the State Council to issue new detailed
guidance on our overseas investment before we make the next move,"
he said. "We will also come up with parallel regulations."
China's National Social Security Fund, which totaled 132.5
billion yuan (US$16 billion) at the end of 2003, is a strategic
reserve fund controlled by the central government to support future
social security demands as the nation's population gets older,
while the welfare funds overseen by the Ministry of Labour and
Social Security are mainly used to cover current social security
expenditure.
The council, which was established in 2000, had formally
authorized six domestic fund management companies to help it
conduct securities investment on the mainland last year.
The fund realized a return ratio of 3.56 per cent last year,
compared to 2.59 per cent in 2002.
As much as 24 per cent of the returns were generated by stock
investment, said Xiang.
He said the council would choose more new fund managers this
year, as a higher proportion of funds would flow into stocks.
Some fund managers have already expressed an interest in taking
part in the bidding, including joint ventures such as ABN AMRO
Xiangcai Fund Management Co.
The securities sector has a generally optimistic outlook
regarding the mainland's stock market performance this year, based
on the good economic prospects and improving corporate results,
according to industry experts.
Xiang said the council would raise the upper limit of the ratio
of funds used for equity investment to 15 per cent this year, from
the previous ceiling of only 5 per cent.
But it will be prudent in investment and pay close attention to
risk control.
"We will not take high risks for high returns," Xiang said,
adding: "We will not put all our eggs into one basket."
(China Daily April 10, 2004)