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Social security cash to be invested overseas
By Sun Min (China Daily)
Updated: 2004-04-09 23:18 China is putting the finishing touches to a plan
to invest part of its social security fund in overseas capital markets and will
start to choose new fund managers this year.
"The State Council (China's cabinet) approved our overseas investment
proposal on February 9, but we have not yet finished the legal and institutional
preparations," Xiang Huaicheng, chairman of the National Council for the Social
Security Fund, told a Beijing press conference on Friday.
The council, the first domestic institution approved to invest in overseas
capital markets, has yet to conduct further market analysis, choose fund
managers and custodians and get its precise investment plans approved before
starting to trade in overseas bonds and equities.
Xiang cautioned that all of this will take time, adding that no timetable was
currently available.
Xiang did not reveal how much money the council would be investing overseas,
but assured that the process will take place in a well-prepared and gradual
fashion.
The international economic climate and the council's own capabilities will
also determine how fast the fund will enter overseas markets, he said.
Market sources have estimated that only around 4-5 billion yuan (US$483-603.8
million) would be allowed to be invested in the Hong Kong market at the initial
stage.
"Hong Kong is certainly a preferred market for our overseas investment, but
it will not be the only one," Xiang said.
Council Vice-Chairman Gao Xiqing said it will pick the best fund managers
when it enters a given overseas market.
Overseas companies are the preferred choice, since domestic companies may not
have sufficient overseas expertise.
"We are waiting for the State Council to issue new detailed guidance on our
overseas investment before we make the next move," he said. "We will also come
up with parallel regulations."
China's National Social Security Fund, which totalled 132.5 billion yuan
(US$16 billion) at the end of 2003, is a strategic reserve fund controlled by
the central government to support future social security demands as the nation's
population gets older, while the welfare funds overseen by the Ministry of
Labour and Social Security are mainly used to cover current social security
expenditure.
The council, which was established in 2000, had formally authorized six
domestic fund management companies to help it conduct securities investment on
the mainland last year.
The fund realized a return ratio of 3.56 per cent last year, compared to 2.59
per cent in 2002. As much as 24 per cent of the returns were generated by stock
investment, said Xiang.
He said the council would choose more new fund managers this year, as a
higher proportion of funds would flow into stocks.
Some fund managers have already expressed an interest to take part in the
bidding, including joint ventures such as ABN AMRO Xiangcai Fund Management Co.
The securities sector has a generally optimistic outlook regarding the
mainland's stock market performance this year, based on the good economic
prospects and improving corporate results.
Xiang said the council would raise the upper limit of the ratio of funds used
for equity investment to 15 per cent this year, from the previous ceiling of
only 5 per cent.
But it will be prudent in investment and pay close attention to risk control.
"We will not take high risks in order to get high returns," Xiang said,
adding: "We will not put all our eggs into one basket."
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