(Yicai Global) Oct. 27 -- Pension funds stand poised to enter the Chinese stock market. Regulatory restrictions, a complex pension fund administration system, and the wariness of pension fund managers to invest all mean that the total investment by pension funds is unlikely to exceed CNY100 billion (USD15 billion) at first.
Mr. Dong Dengxin, pension finance expert and president of the Institute of Finance and Securities at Wuhan University of Finance and Securities said, "Judging by equity investments entrusted by provincial pension fund management commissions in Shandong and Guangdong, three to five provinces will be approved for the first batch, with the total amount of pension funds to be entrusted to be around CNY200-300 billion, of which no more than CNY100 billion will go to stock market investment."
Per Chinese pension administrative regulations, provincial governments must bring together pension funds scattered across county and municipal governments at the local level, before such funds can be entrusted for equity investment by provincial officials. However, lower-level governments are not keen to hand over their pensions for investment.
"Local governments will lose control over the pensions once they are taken over by provincial governments, meaning that they are no longer available for local economic development. Also, many local governments are unwilling to publicly disclose the exact amount of local pension funds", Mr. Dong noted. Governments at the county or municipal level need to draft budgets and carry out actuarial calculations to ensure balanced pension payments. Only the surplus will be turned over to provincial governments.
As of now, some provinces have developed specific pension investment plans and entrusted investment plans, noted Mr. Li Zhong, spokesperson of the China's human resources and social security ministry.