Fund managers expect the National Social Security Fund (NSSF) to spend more than 20 billion yuan (about HK$18.74 billion) of its 124 billion yuan of reserves to buy stocks and bonds, as part of a strategy to boost returns. The government has appointed Xiang Huaicheng, 64, who served as finance minister under former premier Zhu Rongji, as chairman of the National Council for Social Security Fund, which controls the NSSF. The NSSF was set up in 2000 to plug the shortfall in provincial social security systems with state-allocated funds and proceeds from the sale of state-owned shares. A 2001 Bank of China International report estimated the country's unfunded pension debt at US$850 billion, or 80 per cent of China's gross domestic product in 2000. Under Chinese regulations, up to 40 per cent of the NSSF's holdings could be invested in domestic stocks. But analysts widely expect Beijing to be cautious at the beginning and start with a lower amount. 'We expect the NSSF to allocate the money quickly,' said an official of China Southern Fund Management, one of six firms chosen at the end of last year to manage the money. 'We have prepared everything. The amount should be 20 billion yuan or slightly more. A majority will go into stocks and the rest into bonds.' A second fund manager said that there had been a long debate about how to make best use of the money and that investment in stocks was a way to try something new and earn a higher return. 'The money is likely to be spent before the end of May. It should bring the fund a better return than last year.' Tian Hongwei, a fund analyst at Shanghai's Guotai Junan Securities, expects Beijing to announce the move, together with other market-friendly policies such as a possible stamp duty cut, during the holiday shutdown of the Shanghai and Shenzhen stock exchanges. Such measures, it is hoped, will help lift the mainland stock market from a prolonged downturn and the shadow cast by the recent atypical pneumonia outbreak. Last year, the fund earned a return on capital of 2.75 per cent. Of the total, 75.6 per cent was kept as bank deposits, 22.06 per cent in government bonds and only 1.5 per cent, or 1.86 billion yuan, in financial and corporate bonds and shares, reflecting official unease about the volatility of the securities market. As its only direct stock investment so far, the national fund forked out 1.26 billion yuan for China Petroleum & Chemical's A-share initial public offering (IPO) in July 2001, only to see the oil giant's share price fall 11.6 per cent from its IPO level to its closing price of 3.73 yuan on April 30. The China Southern manager said that the NSSF would not limit the kind of company stocks that it could buy. 'It will not limit us to buying only state firms or only certain sectors. But it will set limits on what proportion can be spent on one company and exclude firms that had been guilty of irregularities,' he said. 'The investment will be positive for the market.' The man at the NSSF responsible for supervising the investment is Gao Xiqing, vice-chairman of the China Securities Regulatory Commission until the end of last year, who took up his new post in February. A lawyer with a background in investment banking, he is considered well qualified by the fund management community. In addition to China Southern, the six fund management companies chosen in December last year to handle the money are Boshi Fund Management, Changsheng Fund Management, China Asset Management, Harvest Fund Management and Penghua Fund Management. Speaking to a board meeting of the fund in Beijing in late February, Mr Zhu said the money they managed was an important reserve of the nation, of equal status to the country's foreign-exchange reserves and a guarantee of economic development and social stability. 'You must manage well this task of enormous significance,' he said. Overseas fund managers have suggested to China to allow part of the funds to be invested in international securities to diversify risks and earn better returns, as Hong Kong's Mandatory Provident Fund has done. Beijing had no plan to adopt the proposal at the time being, said Liu Zhongli, a former chairman of the National Council for Social Security Fund, in March. Beijing has also yet to work out how to allocate the fund's holdings to provinces to fill widespread social security funding gaps, analysts say.