China Expands Investment Scope of Social Security Funds
China's recent regulations expand the social security fund's investment scope, leveraging state-owned equity and cash benefits to address past funding gaps and boost long-term market investment.
Recently, China's Ministry of Finance, Ministry of Human Resources and Social Security, and State-owned Assets Supervision and Administration Commission of the State Council issued the "Interim Measures for the Transfer and Enrichment of Social Security Funds through State-owned Equity and Cash Benefits" which expanded the investment scope of the social security fund.
Background
In the 1990s, China implemented a pension insurance system for enterprises, where the continuous working years of on-duty employees prior to this were generally treated as equivalent to paid contribution years, leading to a gap in the pension insurance fund. In 2017, the State Council required the transfer of a portion of state-owned capital to enrich the social security fund, uniformly set at 10% of the enterprise's state-owned equity.
By the end of 2020, among the central SOEs controlled by the central government, 93 central enterprises and central financial institutions completed the transfer, totaling 1.68 trillion yuan (230 billion USD); by now, the national transfer work has been basically completed.
However, there have always been two issues:
Due to the prohibition period, the social security fund could not realize the transfer of state-owned equity to fill the gap.
The entrusted management institutions could not influence the cash dividend ratio of related state-owned enterprises, resulting in minimal cash dividend returns for the social security fund.
As the prohibition period for most of the transferred state-owned equity has expired, obtaining profits through operation and management is necessary. This "Regulation" expands the cash earnings investment scope managed by the National Council for Social Security Fund, covering deposits and interest rates, credit fixed income, stocks, and equity products, specifying the investment ratio for each type of product.
Due to the rich investment operation experience and good investment performance of the National Social Security Fund, it is also required at the local level to entrust no less than 50% of the cumulative cash earnings at the end of the previous year to the National Social Security Fund for investment and operation, with the remaining part to be invested and operated by various receiving entities within a specified scope (bank deposits, purchasing national debt on the primary market, increasing capital to the transferred enterprises and their controlling enterprises).
Since its establishment, the Social Security Fund has accumulated investment earnings of 1.657 trillion yuan (229.43 billion USD), with an average annual return rate of 7.66%. The performance of 2023 will be disclosed in the second half of the year.
According to the report of Securities Times, as of the end of last year, the Social Security Fund was among the top ten circulating shareholders of 53 A-share listed companies, with the largest holding market value in Founder Securities at 8.783 billion yuan, focusing on materials, energy, and finance sectors.