Beijing: China may invest its huge USD 500 billion pension fund into the volatile stock market, a move officials say will keep up its value and improve management as the world's second largest economy faces challenges arising out of growing ageing population.
An official draft guideline gives the fund the green light to invest in the stock market but restricts the maximum proportion of investment in stocks and equities to 30 percent of total net assets.
The move is to improve investment management and supervision of the social security fund and diversify investment channels, the Ministry of Human Resources and Social Security (MHRSS) and Ministry of Finance said in a joint statement yesterday.
In China, urban employees pay for their pension before retirement and usually get a pension equal to about half of their previous salary.
Outstanding contributions to the fund stood at 3.06 trillion yuan (around USD 500 billion) at the end of 2014, state-run Xinhua news agency reported.
An estimate from Chinese Academy of Social Sciences (CASS) said China's pension fund depreciated by nearly 100 billion yuan (USD 16 billion) in the past 20 years, taking inflation into account.
Experts and retirees have for years called for diversified investment but the government has remained cautious due to an immature domestic stock market, which in recent months has shown severe volatility.
The volatility in market has heaped worries on the prospects for the new policy.
Besides the stock market, the fund may be invested in government and corporate bonds, major national construction projects and leading state-owned enterprises.
"The guideline lifts restrictions and will awaken enormous sleeping capital," said Xiong Hui, social security expert with Southwest University of Political Science and Law, suggesting that burdens on the government and employers will be relieved.
The impact on the stock market may be limited as analysts see the move as more of a policy breakthrough than a practical boost to shares.
Zheng Bingwen, researcher with CASS, predicted that around 300 billion yuan in the fund will be channelled into the market, far below the 30-percent cap.
In terms of risk control, MHRSS said managers will be asked to set up reserve fund valued at 20 percent of management fees and 1 percent of yearly returns to offset losses.
The guideline is the latest attempt by the government to address the problems of an ageing population, including a diminishing work force growth and weak domestic consumption.
China's senior citizens, over 65 years old, make up over 10 percent of the country's population and the ratio may rise to a third by 2050.
A country is considered an ageing society if the ratio is higher than 7 percent.
