Illegal investment of social security funds will be punished severely if discovered, China's top watchdog of social security funds has warned.

The Ministry of Labor and Social Security has issued a notice saying that all social security funds, except for sums paid to beneficiaries, must be deposited in banks or used to purchase state treasury bonds.

The notice prohibits other investments before the state has devised new regulations.

The notice was issued following a widely publicized scandal in Shanghai, where 3.2 billion yuan (US$400 million) of a municipal pension fund was lent to a local company for a toll road.

Former Party chief of Shanghai Chen Liangyu has been dismissed and is under investigation for his involvement in the scandal.

Chen would be punished severely according to relevant laws and regulations if found guilty, Gan Yisheng, secretary-general of the CPC Central Commission for Discipline Inspection, said here on Tuesday.

The notice ordered social security funds to be put in special accounts with separate management over their collection and expenditures.

The social security funds cannot be misappropriated to balance the financial budget, it said.

Pensions must be paid on time and must not be withheld.

It ordered all institutions operating funds to set up strict application and checking systems for work units and individuals who pay insurance premiums. It pledged harsh penalties for the misuse and misappropriation of social security funds.

Social security funds nationwide have been growing at an annual rate of 20 percent, exceeding a total 1.8 trillion yuan (US$230.44 billion) last year, accounting for 10 percent of the country's gross domestic product, according to the ministry.

(Xinhua News Agency September 27, 2006)