China plans to diversify US$406 billion social security fund with ETFs, index products and more to improve returns
- The proposed change also aims to lower management fees to ‘maintain and increase’ the value of the fund, which supports China’s welfare system
- ‘This may help to stabilise markets in the near term but does little to encourage foreign investment,’ analyst says
China has proposed broadening the investment scope of the nation’s 2.88 trillion yuan (US$406 billion) social security fund to include exchange-traded funds (ETFs), index funds and other financial products, in a move seen as helping diversify and improve its returns.
Other options include direct investments into bank loans, negotiable certificates of deposit, industry funds, and equity funds, according to a draft published by the finance ministry on Wednesday. The fund is seeking public feedback on the proposals until January 5.
The move also aims to lower management fees to “maintain and increase” the fund’s value, according to the draft.
“Regulators are again extending official influence over private markets with this latest proposal” by directing support for bank capital and retirement funds to boost markets, said Brock Silvers, managing director at Kaiyuan Capital in Hong Kong. “This may help to stabilise markets in the near term but does little to encourage foreign investment.”
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China introduced the social security fund in 2000 to support the nation’s welfare system, including pensions and public medical insurance coverage, to help the population cope with retirement shortfall.