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Friday January 20, 2012

China eyes pension fund boost for stock market

BEIJING: China's local governments could plough up to US$57bil into the domestic stock market under a proposal, which sources familiar with the matter said was with the cabinet, to allow them to allocate some of their pension funds into shares.

If approved by the State Council, the move would be a welcome boost for the country's stock markets. The Shanghai exchange has lost a quarter of its value in the past nine months and is trading 62% below its 2007 peak.

China's pension funds, mostly managed at the local level, have struggled to retain the value of their holdings as they can only put workers' savings in bank accounts and government bonds. That often means negative returns when adjusted for inflation.

The proposal could see 10%-20% of provincial and large city pension fund assets gradually funneled into the stock market, said one of the sources, equivalent to 180 billion-360 billion yuan (US$29bil-US$57bil), based on an official's estimate of pension funds held at the local level. The percentage allowed would vary by locality, said the source, who has close ties to the government and declined to be named because of the sensitivity of the subject.

A senior financial industry executive familiar with the proposal put the likely total figure lower, at 100 billion to 200 billion yuan. He also declined to be named.

In December, Dai Xianglong, head of the National Social Security Fund (NSSF), said in a speech published on the fund's website that the government was considering a plan to gather together part of the pension funds managed by provinces and cities and invest some of that in stocks.

China's local pension holdings total around 1.8 trillion yuan, Dai has said. A tenth of that would represent about 1% of the market value of the companies included in the Shanghai Composite Index.

The NSSF has been publicly exploring ways to boost returns on the country's pensions, an increasingly urgent need as China's 1.35 billion population ages. - Reuters

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