China will expand its social security fund to "at least US$200 billion", or 1.55 trillion yuan within a decade, the chairman of the National Council for Social Security Fund (SSF), Xiang Huaicheng has said.

 

The announcement was made during a speech by the fund's top administrator in Hong Kong on Wednesday and quoted by the Chinese-language press.

 

Xiang also said that in 2006 the best year yet for Chinese stock investors since the market's inception in the 1990s the SSF saw its funds grow by 9.3 percent in value terms. By the end of last year, the total value of the social security fund was US$41.8 billion, or 323 billion yuan, the SSF said.

 

Xiang also said that according to government rules, the SSF can allocate 20 percent of its portfolio to overseas investments. However, due to a lack of managerial expertise, less than 5 percent of the fund has so far been invested overseas.

 

Xiang said that between now and 2035, the fund could expand fivefold, if it maintains an average 5 percent annual growth rate, and can recruit more institutions and individuals before the population reaches the highest point of its aging curve.

 

Xiang, who has been head of the SSF administration for the past six years since retiring as finance minister, said there was a consensus that in 2035, demand for pensions will start to peak and the floodgates will open.

 

He said the World Bank estimates that by that date, China will need a fund of about 9 trillion yuan, despite a study by the former Ministry of Labor saying that the figure will be just 2 trillion yuan.

 

"It's an astronomical number anyway," Xiang reportedly said. "But as long as we take the matter seriously now, we might be able to avoid a worst-case scenario."

 

The social security fund has four key resources: allocations by the central government, funds derived from transactions in State-owned assets, lotteries, and investments. More resources will be needed to boost the fund, Xiang said.

 

In the past, the central government tried to beef up the fund by selling some of the stocks it held in State-owned enterprises. But these efforts were soon discontinued, as they disturbed the market at a time of sluggish trading.

 

Nevertheless, the poor timing did not harm the SSF's reputation. Today, other national funds seek its management services.

 

(China Daily March 30, 2007)