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Social Security Cash Eyes Hong Kong Market

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)

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