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China Brings in Qualified Investors to Manage Pension Funds

China plans to hand over to professional investors a massive swathe of funds destined to finance Chinese pensions.


Every month, 24,000 Chinese enterprises and their employees pay money into a corporate annuity fund, one of the pillars of the country's fledgling insurance system for retirees.


The corporate annuity fund, which covers 9.64 million people, had 91 billion yuan in assets at the end of 2006, but only 15.8 billion yuan was being handled by professional investors -- endowment insurance companies, commercial banks and other qualified investors.


By the end of this year, after a further 75 billion yuan (US$9.62 billion) has been transferred, the whole fund will be in the hands of qualified investors.


The time is ripe for handing over the remaining 75 billion yuan to qualified investors because the prospects of the capital market are good, stricter supervision is in readiness and investment risks are under control, said Zuo Xiaolei, chief economist with Galaxy Securities.


The corporate annuity fund must be managed in a cautious, low risk manner, she added.


The move seeks to ratchet up investment returns while injecting money into China's capital market to fuel the country's economic development.


With regulations limiting stock market investments to 20 percent of the fund's total assets, it is estimated that 15 billion yuan can be invested in the stock market this year.


Fifteen billion yuan is not a huge sum but still significant for the stock market, said Wang Deying, vice president of Bosera Funds, one of China's first fund management companies established in 1998.


China's Ministry of Labor and Social Security (MLSS) approved 37 companies as qualified managers and investors of corporate annuity funds in 2005.


The funds turned over to qualified investors in October last year yielded a robust return of 9.6 percent over a period of three months, according to the latest figures from the MLSS.


Increasing the number of qualified investors this year will give companies more options, said Liu Yongfu, deputy minister of labor and social security, adding that more and more enterprises, especially medium to small sized ones, will contribute to this type of fund.


To secure the fund against losses and make it profitable, China will strengthen supervision of these investors, urging them to open management work to public scrutiny, said Liu.


The investors are required to file quarterly and annual reports with the MLSS specifying how the funds have been utilized.


The transfer has been under way since the beginning of the year. In south China's Guangdong Province, Shenzhen Occupational Pension Fund Management Center started in January to transfer its two billion yuan to Ping An Endowment Insurance Co. and China Merchants Bank.


Shanghai is planning to set up an endowment insurance company with registered capital of 500 million yuan to manage a corporate annuity fund worth 15 billion yuan on behalf of 7,000 enterprises.


(Xinhua News Agency April 4, 2007)

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