Pen­sion funds ‘not obliged’ to prop up stock mar­ket


China’s pen­sion funds do not have the obli­ga­tion to prop up or res­cue the coun­try’s tur­bu­lent stock mar­ket, a top of­fi­cial said on Fri­day amid pop­u­lar ex­pec­ta­tions for the funds to do so.

Up to 600 bil­lion yuan ( US$97 bil­lion) could be chan­neled into main­land China’s eq­uity mar­ket af­ter the State Coun­cil gave fi­nal ap­proval on Sun­day to al­low pen­sion funds ac­cess to the stock mar­ket. These funds will be able to in­vest up to 30 per­cent of their net as­sets in the coun­try’s stocks, stock in­dex fu­tures and gov­ern­ment bond fu­tures, a de­par­ture from the re­quire­ment that the mas­sive funds could only park money in low-yield­ing bank de­posits and Trea­sury bonds.

How­ever, the news did not stop an 8.5 per­cent plunge the fol­low­ing day as in­vestors were not op­ti­mistic on the short-term ef­fect of the de­ci­sion.

You Jun, deputy head of the main­land hu­man re­sources and so­cial se­cu­rity au­thor­ity, told a news brief­ing that the Na­tional Coun­cil for the So­cial Se­cu­rity Fund will pru­dently make in­vest­ment de­ci­sions with the in­ten­tion of pro­tect­ing and grow­ing the fund.

“The funds do not have the obli­ga­tion to prop up or res­cue the stock mar­ket, as many hoped it would,” said You.

China had 3.5 tril­lion yuan in pen­sion funds as of the end of 2014, and about 2 tril­lion yuan can be in­vested af­ter set­ting aside funds for pen­sion pay­ments, You said. China can en­sure “sta­ble” long-term re­turn of the funds.

Re­spond­ing to how long it will take the funds to flow into the mar­ket, deputy fi­nance au­thor­ity head Yu Weip­ing dodged a def­i­nite an­swer.

He said the gov­ern­ment is draft­ing rules for pool­ing and trans­fer­ring the myr­iad funds and in­vest­ments into the stock mar­ket. It will take place af­ter spe­cific rules are made and the funds pooled.

“We are ac­tively mak­ing

the rules and hope it would come out as soon as pos­si­ble. The en­trusted agen­cies also have the right to de­cide when to in­vest,” Yu said.

Main­land China’s pen­sion funds are a patch­work sys­tem that is mostly over­seen by city and county- level gov­ern­ments, and it has proved dif­fi­cult to con­sol­i­date them even at the pro­vin­cial level. To con­sol­i­date the funds means lo­cal gov­ern­ments will cede con­trol of the money to a cen­tral­ized or­ga­ni­za­tion, the most chal­leng­ing part of the work, ex­perts said.

Yu said the main­land fi­nance au­thor­ity is con­sid­er­ing in­cen­tives, such as tax breaks, to en­cour­age lo­cal gov­ern­ments to do so.

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