State fund chases investments
Options include buying into two state banks and going into overseas stocks
The chairman of the National Social Security Fund (NSSF) plans to invest between eight billion and 10 billion yuan to buy shares of two of the big state banks and is looking at overseas stocks, in order to obtain a better return for his money.
Xiang Huaicheng, a former finance minister, is in charge of one of the biggest pots of money in the mainland, at 191.7 billion yuan at the end of last month, which is supposed to cover the social security obligations of hundreds of millions of his countrymen in the next 50 years.
Mr Xiang has set a minimum of one trillion yuan as sufficient for the huge population size and rapid speed of ageing. The number of people at or over 60 is growing 3.53 per cent a year and will reach 400 million by 2030.
'Our rate of return is low, at about 3 per cent a year or an accumulated 14.99 per cent [since the fund was founded in 2000], above the inflation rate of 7.9 per cent during the period,' he told a meeting at the Beijing University on Wednesday.
'We must expand the scope of our investments ... Investing in bank deposits and treasury bonds is far from enough.'
His breakdown of how the fund is invested showed 81 per cent was committed in low-yield bank deposits and treasury bonds.
Its most successful investment was the 10 billion yuan spent last year for a 14 per cent stake in Bank of Communications at $1.80 a share, which is now worth more than $3 a share.
Mr Xiang said he was assessing investments in Bank of China, China Construction Bank (CCB) and Industrial & Commercial Bank of China (ICBC) and would choose two to invest in.
'At least we will invest eight billion to 10 billion yuan,' he said.
CCB is listing in Hong Kong this month while Bank of China hopes to list in the city early next year and ICBC wants to follow suit.
In February, the State Council approved the NSSF to invest in overseas shares but it has not done so up to now.
Mr Xiang said the fund had made the necessary preparations in terms of trained staff and information systems.
'But we are not in a rush to do this. The main thing is we must consider the impact on the domestic stock market. While this has not changed for the better, once the NSSF invests abroad, it could influence investor confidence in the domestic market,' he said.
But he added that diversification would improve the security and rate of return of the fund. 'We will do it gradually, step by step. It needs a period of maturity, starting small and possibly increasing in the future.'
Mr Xiang said government departments had completed consultations on revising the regulations that governed the fund and were in the final stages of drafting.
The NSSF obtains its money from funds from the central government, ownership of stocks, state lotteries and investment. It is due to receive a substantial boost in funds from the sale of state shares of listed companies.
