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The National Social Security Fund would study the possibility of acquiring a stake in the newly established Bank of China Ltd., a senior official of the fund’s National Council said Friday.
“The possibility (for us to invest in the bank) does exist, but we have to do some investigations first,” the fund’s vice chairman, Gao Xiqing, said.
Asked whether due diligence of the bank’s accounts was already underway, “it hasn’t officially begun yet,” Gao said.
The fund, which oversees the country’s pension reserve, recently paid 10 billion yuan (US$1.21 billion) for a more than 10 percent stake in the Bank of Communications, China’s fifth-biggest lender and a candidate for a local share offering possibly before the end of this year.
That strategic investment represents part of the council’s efforts to expand the fund’s investment scope, which is currently limited to less risky assets such as bank savings deposits and treasury bonds.
Beyond that, the pension fund is also allowed to put up to 40 percent of its assets indirectly into the domestic stock market through designated fund managers.
The council is expected to begin reviewing candidates for a second round of fund manager appointments this year with the qualifying criteria possibly widened to include foreign-invested fund management companies.
Speaking on the sidelines of a venture capitalist conference in Beijing, Gao said the council, positioned as a conservative investor, had been trying hard to persuade the State Council, China’s Cabinet, to loosen the “very restrictive rules” on its investment choices.
The fund council has also been waiting for rules to be finalized that will allow some assets to be channeled into capital markets in Hong Kong.
The State Council approved the plan in early 2004 but the related regulations have yet to be worked out.
Even after the rollout of the new rules, it would still take another two to three months before the fund could officially begin investing overseas, Gao said.
Total assets held by the social security fund grew to 132.5 billion yuan by the end of last year with an investment return of 2.71 percent, slightly below the benchmark 5-year deposit interest rate in China of 2.79 percent.
The rate of return was below the performance target set by China’s leadership of beating banks’ prevailing interest rates.
New reserves are added to the fund each year through a direct budget allocation, but the annual injections have not created the growth envisaged by China’s leaders.
“The sense we have from the State’s leaders is that within three years our fund should increase by about six to 10 times,” Gao said.
Against this backdrop, broadening the source of funds looked even more important than simply widening the investment scope, he said.
In a bid to fill such a huge gap, Gao said he and other managers at the council had been lobbying the State Council for an increased allocation to the reserve.
“As I understand, the State leaders are...carving out a huge tranche of state assets for us,” Gao said.
In a pilot share selldown program in 2001, Chinese listed companies were levied part of the money raised from selling some of their State shares on the local stock market to top up the pension reserve.
That source of funding stopped when the government abruptly canceled the program in response to shareholders’ anger at the newly issued equity pushing down the value of existing tradable shares.
One idea floated in recent years was to transfer some State shares directly to the fund to increase its asset base, making them tradeable but not immediately releasing them onto the market.
Those shares would then be managed like a tracker fund, similar to the one created in Hong Kong to handle stocks bought by the Hong Kong Monetary Authority during the Asian financial crisis to shore up the Hang Seng Index.
But nothing so far has come of either idea.
Instead Gao suggested the government use a range of levies to ensure a flow of new funds into the reserve.
The fund council hoped the government would introduce several special kinds of taxes on certain “public goods,” he said.
Options included a tariff on land transfers and telecommunications fees, which is currently charged to users at 50 yuan a month, Gao said.
“All these are public goods ... and should service the public,” he said.
(Shenzhen Daily September 13, 2004)
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