SHANGHAI • China is preparing to allow pension funds managed by local governments to invest in the stock market for the first time, potentially channelling hundreds of billions of yuan into the country's sagging equity market.
Beijing published draft rules on the proposed change late on Monday, hours after China's stock markets had closed sharply down despite surprise monetary easing moves by the central bank at the weekend.
The draft guidelines give the green light for investment in new channels amid worries about the funds' low returns over recent years, the official Xinhua news agency reported.
The pension funds will be able to invest up to 30 per cent of their net assets in China's stocks, equity funds and balanced funds, according to the draft rules published by the Ministry of Human Resources and Social Security (MHRSS) and the Ministry of Finance for public consultation until July 13.
They can also invest in bonds, money market instruments, asset-backed securities, index futures and bond futures in China, as well as in the country's major infrastructure projects, according to the rules. The pension funds, which form roughly 90 per cent of the country's total social security fund pool, can currently invest only in bank deposits and treasuries.
NO ROOM FOR RISK
The funding is used for retirees' daily lives and it cannot be jeopardised by big risks.
A MINISTRY OF HUMAN RESOURCES AND SOCIAL SECURITY AND MINISTRY OF FINANCE SPOKESMAN LI ZHONG, on the pension funds
Urban employees in China contribute to their pension before retirement and get a pension equal to about half their previous salary.
"The funding is used for retirees' daily lives and it cannot be jeopardised by big risks," ministry spokesman Li Zhong said at a press conference yesterday as the ministry insisted that absolute safety be guaranteed .
Together the funds have assets of more than 2 trillion yuan (S$434 billion) that can be invested, meaning about 600 billion yuan could theoretically go into the stock market, according to the official Securities Times newspaper.
The guidelines stipulate that the funds can also invest in the nation's big projects and key enterprise equities, but restrict the maximum proportion of such investments to 20 per cent of total net assets.
The new rules are aimed at "improving investment returns of the pension funds... and promoting healthy and sustainable development of China's pension system", the ministries said.
Local governments are allowed to mandate institutions authorised by the central government to manage the pension funds.
On Sunday, two industry sources with knowledge of the matter told Reuters that China's Cabinet had approved plans for the manager of the country's biggest pension fund to manage about 2 trillion yuan of funds for local authorities.