21 February 2019
Last year,  China issued the first national guidelines to pave the way for pension funds to invest in the stock market. Photo: China Daily
Last year, China issued the first national guidelines to pave the way for pension funds to invest in the stock market. Photo: China Daily

China stock markets hope for pension fund boost

Low fertility rate and an aging population have become major issues for China.

The working-age population, or those between 15 and 59 years old, has already started to decline after peaking in 2011. The nation’s overall population is expected to start shrinking in 2030.

China’s total population, which stood at around 1.37 billion in 2015, will peak at 1.45 billion in 2030, according to a report from the State Council.

The country’s average life expectancy has increased to 76.34, but fertility rate stood at 1.05 in 2015, the lowest in the world.

The proportion of Chinese aged 60 or above will increase to 25 percent by 2030, from 16.1 percent at present, the report said.

A rapidly aging population would put pressure on social security and public services. A decline in the young population will stifle innovation and stall economic growth.

China is trying to tackle the problem from two sides.

It has launched the second-child policy to boost the number of newborns.

The nation also aims to enhance the social security system so that the elderly could be given better services.

One hurdle is financing. Last year China’s social security fund reported a revenue growth of 14.7 percent, but expenses jumped 19.3 percent in the same period, according to official data.

This gap could grow wider in the coming years as a result of an aging population and a decline in the working population.

In view of such a situation, the government unveiled a set of investment management guidelines last year to regulate pension fund management, paving the way for such funds to invest in stocks to boost their returns.

Implementation has been slow so far, but National Council Social Security Fund head Lou Jiwei said some local pension funds should be ready to invest in stocks through the NCSSF’s discretionary management services.

Currently, the nation’s pension fund is around 4 trillion yuan (US$581.5 billion). Given the mandatory cap of 30 percent, theoretically, around 1 trillion yuan of the fund could be invested in equities.

Of course, pension funds will pace their investments. Guangfa Securities estimates around 250 billion yuan would be invested in the first phase.

That would definitely impart new vigor to the lackluster domestic stock markets.

Some even compared the move with impact of the 401K plan in the United States in the 1980s, which set off a 10-year bull cycle in US stocks.

Nevertheless, without solid economic expansion, pension fund money alone won’t be enough to boost the market in a substantial and sustainable way.

This article appeared in the Hong Kong Economic Journal on Jan. 27

Translation by Julie Zhu

[Chinese version 中文版]

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