Just because China's pension funds have begun to invest in financial markets doesn't necessarily mean the stock markets will be flooded with new money, an official said at a press conference in Beijing on Wednesday.
China allowed its pension funds to start investing 360 billion yuan ($52.34 billion) in markets at the end of 2016, said You Jun, vice minister of the Ministry of Human Resources and Social Security.
Seven provinces have entrusted their pension funds to the plan, You said. The ministry has already chosen fund management institutions, including four entrusted banks and 21 fund managers.
The country's social insurance funds had grown to 5.3 trillion yuan by end 2016, up 14.7 percent from 2015, according to ministry data.
The idea of public pension funds entering the financial markets has tantalized some stock investors, who believe the move will push up stock prices.
On Wednesday, You stressed that launching pension insurance funds for investment doesn't mean the money will flow into the stock market and stocks were just one investment option for the pension funds.
The implementation of the plan is a gradual process, where local authorities make entrust plans based on local economic and social development as well as the balance and structure of funds, according to You.
As for the security of the fund's principal and returns, "the regulators have implemented mechanisms like internal controls and risk management reserves to control risks … Favorable policies are also needed to improve the returns," he said.
You also noted that the government will soon issue disclosure and performance rules for the program.
Human Resources and Social Security Minister Yin Weimin pointed out at the press conference that the imbalanced operation of pension insurance funds among different regions and the sustainable development of the funds are issues that still need to be solved.
Provinces with high pension insurance income can guarantee their payouts for 50 months, while provinces with low pension insurance income can't cover their expense for a year, he explained.
The sustainable development of the pension insurance fund is another important issue as China's old-age dependency ratio has fallen to 2.8 from 5.0 over the last 20 years, Yin said.
