China To Allow Foreign Fund Companies To Manage Pension Funds

by Caroline Maxwell, Investors Offshore.com

29 June 2001

The Chinese government will be allowing foreign fund companies to manage part of the country's US$6 billion pool of social security funds, it was revealed recently. The move marks another leap forward for the further opening up of China's financial market prior to its entry into the WTO, and is likely to be welcomed by the many multinational financial conglomerates with designs on the rapidly expanding Chinese market.

Liu Jiafu, the vice-director of the Debt and Finance department under the Ministry of Finance told the Chinese press that the regulation has already been drafted and sent to the State Council for approval. 'The to-be-announced regulation will outline a detailed policy for the involvement of foreign fund management companies in the market,' he said, adding: 'If everything goes smoothly, the regulation will be unveiled before October.'

The vast bulk of China's social security funds are currently held in bank deposits and treasury bonds, which generate very low yields, and the government has been looking into ways of reforming the system to allow pension plans to pay higher returns while curbing financial risk. The involvement of foreign companies (which are presently barred from entry) would enable the country to increase the value of the funds in an efficient way, according to experts, providing higher levels of support for the growing number of elderly Chinese citizens.

According to Mr Liu, the proposed regulations will also contain provisions for allowing the funds to be invested in the stock markets, which has hitherto been considered too dangerous for social security funds. However, he emphasised that this move should be taken slowly and carefully, and in a risk averse manner: 'The investment of these funds into the stock market should be very cautious as the low quality of listed companies could make for a blind investment into the equity market,' he said.

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