The scheme may help dispose of state assets and raise capital to fill the shortfall in cash for pensions Mainland officials are studying the possibility of launching a Hong Kong-style Tracker Fund as a way to dispose of state assets and raise capital to cover its pension shortfall. State Street Global Advisors chairman and chief executive Timothy Harbert yesterday said the fund manager had been in talks with several mainland officials on a possible tracker fund for China. State Street is known for helping the Hong Kong government, which launched the Tracker Fund in 1999 to dispose of stocks it acquired during market interventions in 1998. The portfolio initially cost the government $118 billion and later increased to more than $200 billion in value. 'We did have a fair amount of meetings with various authorities and regulators in Beijing and Shanghai to discuss creating a tracker fund in China,' Mr Harbert said. He said mainland officials were interested in using an indexed fund to sell a basket of state-owned assets to finance pension obligations believed to be more than seven trillion yuan (HK$6.56 trillion) in 2001. 'But there are also a large number of obstacles we have to cope with,' he said. 'Everybody will agree that in theory it is a great concept but in reality its implementation is very complicated.' The Hong Kong Tracker Fund is relatively straightforward, as the government portfolio held the 33 Hang Seng Index constituent stocks for companies which all have a clear legal status. But on the mainland, a number of state-owned enterprises are co-owned by central and provisional governments, and many of them are not listed. Shareholder restructuring and debt rearrangements will be needed before the companies can be wrapped into a tracker-style fund. Mr Harbert said the central government would consider launching a fund as a pilot scheme using a small amount of assets in a single city. Stuart Leckie, chairman of the Hong Kong Retirement Schemes Association, said a tracker-style fund would be good for China if implemented properly. 'The idea has actually been around for a couple of years,' Mr Leckie said. 'We know the mainland authorities studied the [Hong Kong] tracker fund quite closely. And I certainly had a number of discussions with different people, just to talk about the subject.' But investors should be allowed to buy the underlying shares, not just the tracker units, he said. Another obstacle to starting a tracker fund in China is the sluggish A-share markets, which central government officials have been trying to support. 'They are a quite a bit sensitive about any state-owned shares ... directly or indirectly finding their way into the A-share market, because that's going to almost certainly cause further weakness,' Mr Leckie said. Another problem would be making a mainland tracker fund desirable to investors. The Hong Kong fund was sold at a discount to draw interest. 'I don't think the government or the [China Securities Regulatory Commission] would be keen to come up with a Chinese tracker fund,' he said. 'If they sold a lot of Chinese tracker units, and the A-share markets would fall another 100 points.' Vincent Duhamel, Asia chief executive for State Street, said the Hong Kong Tracker Fund remained popular with investors even after the government ceased its quarterly disposal plan. Many Mandatory Provident Fund managers would like to add the Tracker Fund to their pension schemes, Mr Duhamel said.