China’s pension fund to join the new Silk Road investment spree

The National Social Security Fund says it has a pipeline of deals, but is under growing pressure to expand its assets amid an ageing population

PUBLISHED : Wednesday, 31 May, 2017, 8:02am
UPDATED : Wednesday, 31 May, 2017, 11:36pm

China’s 2 trillion yuan (US$290 billion) national pension fund will hop onto the country’s new Silk Road bandwagon, joining other state-backed institutions to seek lucrative deals along the route.

Wang Zhongmin, a vice-chairman of the National Social Security Fund (NSSF), said the fund would take a go-slow and low-key approach, but he conceded that a bag of investment deals are in the pipeline.

“We will do investments along the route,” he told the South China Morning Post . “We are resolute in going abroad, but I can’t disclose details of the projects and investment figures.”

The NSSF, a reserve fund used to supplement local pension pools, will follow on the heels of the country’s powerful institutions including China Development Bank, the US$54.5 billion Silk Road Fund, Import and Export Bank of China and other financial juggernauts to fund the grand project officially known as the Belt and Road Initiative.

We are resolute in going abroad, but I can’t disclose details of the projects and investment figures
Wang Zhongmin, NSSF

The vice-chairman would not shed light on the tactics and models of the investments .

Technically, the NSSF, known as a giant fund of funds, could mandate part of its assets to other asset managers such as private equity funds to seek investment returns.

In early May, NSSF chairman Lou Jiwei told the pension fund’s council that investments via offshore private equity funds would be “closely studied” this year, an indication that a major breakthrough in allocating part of its assets abroad could be expected.

Chinese President Xi Jinping proposed in 2013 to build the "Belt and Road Ininiative" with 65 countries in Asia, Europe and Africa, which have a combined economic output of US$21 trillion.

China is expected to invest at least 780 billion yuan via the state funds and banks to finance projects, in an ambitious drive to lead a new global economic order.

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“It will be a gradual process,” Wang said. “Chinese institutions should do businesses little by little.”

China, the world’s second-largest economy, has yet to consolidate a solid foothold with strong local business operations in overseas markets, despite efforts in the past decade to increase its economic might globally.

“We found it difficult to find a Chinese bank to act as our custodian in overseas market before,” Wang said. “It was not until recently that we could appoint overseas branches of Chinese banks to do so.”

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Founded in August 2000, the NSSF had an initial capital base of 20 billion yuan.

Government subsidies, lottery sales, free transfer of state assets and investment returns are major sources of funds for the NSSF.

The fund is of strategic importance to China where an ageing population is ratcheting up pressure on the government to replenish the underfunded pension pool.

At the end of 2016, the NSSF had total assets of 2.04 trillion yuan, after reporting a 1.7 per cent investment return, it said in a recent statement.

We found it difficult to find a Chinese bank to act as our custodian in overseas market before
Wang, Zhongmin, NSSF

Among the 2.04 trillion yuan, 226.3 billion yuan of funds are managed by the NSSF on behalf of provincial-level pension pools, which are in charge of paying out the pensions to retired workers in their own regions.

According to its annual report for 2015, 113.5 billion yuan of funds were slated for investment outside the mainland, or 5.93 per cent of its total at that time.

Tan Jialong, director of Zendai Group’s investment division, said the national pension fund would tap on globally renowned private equity funds to invest in lucrative projects along the Belt and Road route that could generate strong returns and stable cashflow.

“At present, it seems unlikely that the pension fund would directly participate in Belt & Road construction projects, which will be mainly supported by state-backed policy lenders and specialised funds,” he said.

“The state-backed institutions focus on long-term, stable cashflow, rather than investment returns from their investments, but the pension fund will certainly need to chase high returns.”