context: Fragmentation has contributed the pension system remaining unprofitable. In 2015, State Council proposed an entrusted investment management pilot scheme to integrate provincial-level pension assets into a unified account for value investing. As of September 2018, 15 local authorities have joined the program. The first year’s operation yielded some small gains, but regular returns are by no means guaranteed.

National Council for Social Security Fund (NCSSF) released the first annual report and accounts of the basic pension insurance fund since its launch in December 2016, reports China Securities News. By end 2017, nine provinces and municipalities (Guangxi, Beijing, Henan, Yunnan, Hubei, Shanghai, Shaanxi, Anhui and Shanxi) have entrusted their provincial-level basic pension funds to NCSSF for a period of five years. Promised transfer amounts total 430 bn, of which 273.15 bn has been received. The fund has a broad investment scope, with the aim of preserving and enhancing its value. Main areas cover

  • direct investment
    • bank deposits, central bank bills
    • stocks and equities
  • entrusted investment
    • aged-care products
    • bonds
    • publicly-traded security investment funds
    • stock index futures and central government bond futures

The report states

  • financial status
    • total assets: 315.519 bn
      • direct investment: 93.469 bn, (29.62 percent)
      • entrusted investment: 222.05 bn (70.38 percent)
    • liabilities: 33.618 bn, mostly short-term liabilities due to investment operations
    • equities: 281.901 bn
      • equity capital entrusted by local governments: 281.581 bn
      • capital reserves: down 680 million (due to floating loss of tradable financial assets)
      • risk reserves: 38.8 bn
  • investment performance
    • total return in 2017: 8.783 bn (return on investments [ROI]: 5.23 percent)
      • realised exchange gain: 7.642 bn (realised yield: 4.55 percent)
      • changes in fair value: 1.141 bn
    • total return since December 2016: 8.819 bn
      • return in 2016: 360 million

The fund is managed according to ‘market principles’ and has strict risk control and internal inspection regulations, says a NCSSF person in charge. However, most of the fund’s investments focus on short-term products, notes critic Dong Keyong 董克用 China Aging Finance Forum president. International experience, says Dong, shows that pension financial products should focus on high returns through long-term investments, avoiding risks from short-term asset price volatility and illiquid funds.