China will try to expand its social security fund in order to
address the pressures of an aging society, expected to reach its
climax in 2035, Xiang Huaicheng, chairman of China's National
Council for Social Security Fund (NCSSF), told the Tenth Credit
Suisse Asian Investment Conference in Hong Kong last Wednesday.
NCSSF, established in August 2000, is designated to solve the
aging problem and serves as a strategic reserve fund accumulated by
the central government to support future social security
expenditures. It is now headed by 68-year-old Xiang Huaicheng, a
former finance minister (March 1998 – March 2003).
The social security fund grew 9.3 percent last year because
domestic stock markets posted the best performance in ten years,
but experts don't expect a continuation of the same performance. By
the end of 2006, the council had assets on paper of US$41.8 billion
(334.4 billion yuan).
Fund shortage
The World Bank estimates that China will need about 9 trillion
yuan (US$1.16 trillion) more in funds in 30 years, when the country
reaches its aging peak, while a study by the former Ministry of
Labor indicates that the figure should be just 2 trillion yuan
(US$258.7 billion).
Mr. Xiang explained that China would need to add to the social
security fund "at least US$200 billion" (about 1.6 trillion yuan),
adding that his council is striving to reach the target within five
to ten years.
China's social security fund mainly comes from four sources:
appropriation from the central budget, allocation from state asset
sales, lottery revenues, and investment earnings. Excluding the
allocation from state asset sales, the fund grew 20 billion yuan
(about US$2.587 billion) annually over the past several years.
In spite of the huge capital gap, Mr. Xiang feels optimistic,
saying that it is important for the government to realize the
severity of the problem so they can begin to address it.
Reinforcement from state assets
The transfer of state assets accounts for a large proportion of
social security fund, but it has proceeded slowly in recent years.
Due to its negative effects on the stock market, the sale of state
share through listed state-owned enterprises (SOEs) was halted. In
June 2002, the State Council decided to appropriate assets of
non-listed SOEs. In 2003, the Third Plenary Session of the 16th
Central Committee of the Communist Party of China indicated in its
resolution that government will enrich the social security fund in
several ways. A special working team was set up in September 2004,
composed of officials from the State Administration of State Assets
and Supervision (SASAC), the Ministry of Finance, China Securities
Regulatory Commission, and the NCSSF.
"Fund appropriation is decided by the central government and
nobody opposes it. However, we need a process to study how to
appropriate funds and how much," Mr. Xiang told Guangzhou-based
21st Century Business Herald on the sideline of the
conference.
The SASAC intends to add to the fund through sales of state
shares or profits. However, NCSSF and other government departments
hope to obtain a 10 percent stake of domestic listed firms and hire
assets management for capital operations. The two sides submitted
reports to the State Council separately in the first half of 2006
and the controversy continues.
In March, Lin Yifu, a Peking University economist and vice
director of the Economic Affairs Committee of CPPCC National
Committee, proposed a new way to reinforce the social security
fund. He suggested that the Ministry of Finance should issue
long-term special bonds and buy foreign exchanges from State
Administration of Foreign Exchange (SAFE). This could be used to
increase overseas investments, stabilize the foreign exchange rate,
and solve excess liquidity.
Overseas investment
In the second half of 2006, NCSSF selected 10 overseas firms to
oversee its outbound investment and appointed Citibank and Northern
Trust Bank as trustees. Last December, NCSSF officially initiated
oversea investment, mainly on the global stock market, bonds, and
foreign exchanges. The investment volume is about US$1.2 billion
and is expected to rise to US$1.6 billion by the end of March.
The current figure is only 5 percent of its total, far lower
than the 20 percent ceiling. Nevertheless, Mr. Xiang said that his
council will not hurry to raise the proportion, attributing the low
number to the lack of investing expertise and talents.
"We must invest overseas in order to learn the process," he
said.
(China.org.cn by Tang Fuchun, April 4, 2007)