China's top social security watchdog took active steps toward tightening control on investments using social security funds.

From now on, all such funds, excepting amounts due to be paid, must be placed into banks or used only to purchase state treasury bonds. All other investment use is prohibited pending revised regulations, according to a notice by the Ministry of Labor and Social Security.

These steps were taken in the wake of a publicized scandal in Shanghai, where 3.2 billion yuan (US$400 million) of pension funds had been loaned to a local company to build a toll road, resulting in the local labor bureau chief being sacked.

The notice, posted yesterday on the ministry's website, further ordered social security funds to be placed into special accounts, with separate oversight on their collection and expenditure.

These funds will only be allocated for special uses and only at the state's discretion, disabling any misappropriation or embezzlement from government departments or individuals, nor can they be seized to balance the financial budget, the notice stated. Pensions must be paid on time and must not be withheld, it noted.

It required all institutions operating social security funds to set up a strict application and verification system for work units and individuals paying insurance premiums. Any misuse or fraud of social security funds will be met with harsh penalties, it pledged.

The social security fund has been growing at an annual rate of 20 percent in China. And the fund had exceeded 1.8 trillion yuan (about US$230.44 billion) by 2005, accounting for 10 percent of the country's gross domestic product (GDP) for the same year, according to the Ministry of Labor and Social Security.

In the meantime, a 200 billion yuan (US$25 billion) strategic reserve has been created for the national social security fund. Furthermore, corporate annuities from 24,000 profit-making enterprises nationwide have surged to 68 billion yuan (US$8.5 billion).

According to an unidentified ministry official, at least 16 billion yuan (US$2 billion) out of the massive social security fund has been embezzled since 1998.

(Xinhua News Agency September 15, 2006)