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Pension Fund Seeks New Investment Channels

China is looking for new investment channels for the country's mammoth social security fund to spread risks and strengthen its portfolio.

An official with China's National Council of Social Security Foundation (NCSSF) said recently that the council is studying other investment spheres apart from securities and bank deposits.

That would mean the amendment of the guideline regulations adopted by the Chinese Government at the end of 2001, which set a 40-per-cent cap on the amount of funds the foundation can use to invest in stocks and mutual funds; 10 per cent for corporate and treasury bonds; and the rest for bank deposits.

However, the market environment has changed a lot over the past two years, said the NCSSF official; and, therefore, the pension fund is studying new investment tools and will propose changes to the Ministry of Labour and Social Security and the Ministry of Finance.

"We are interested in insurance products," said Gao Xiqing, vice-chairman of NCSSF, at a forum in Beijing last week.

Other potential targets include trust products, industrial investment in big infrastructure projects as well as overseas securities. But such plans are only at a preliminary level.

NCSSF, which controls about 133 billion yuan (US$16 billion) of assets, authorized six domestic fund managers in June to help in securities investment, which was regarded as a major breakthrough because the council used to mainly focus on bank deposits.

However, the languishing stock market has cast a shadow on the investment activities of the fund managers, leading to criticism that unprofessional management had caused losses for the fund, as several of the stocks they picked reported net losses in interim results.

Gao also admitted that the performance of the fund managers had been below expectations but added it was premature to give the final assessment of the investment.

So far, less than 5 per cent of the overall fund has been invested in stocks, far below the 40-per-cent cap. So there is still plenty of room to channel funds when the conditions allow, he said.

Last year, the fund reported a 2.75 per cent return on assets, up from 2.25 per cent in 2001, but most of the returns were generated from bond and bank-deposit interest. It also suffered a 363-million-yuan (US$44 million) loss in its equity investment in Sinopec last year.

Experts said it is crucial for NCSSF to explore new investment channels to spread its risks and increase liquidity.

It should also increase transparency and disclose mores information so that the public is better aware of its operations, they added.

(China Daily November 13, 2003)

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