China urged to secure shrinking social security fund
Staff Reporter, 2012-08-06
A social security office in Yantai, Shandong province. (File photo/Xinhua)
The latest report from China's National Audit Office showing a continuing erosion of the nation's approximately 3 trillion yuan (US$470 billion) in social security funds in the form of bank deposits has prompted renewed calls for widening investment channels and generating better returns.
The office's data released on Aug. 2 showed that the social insurance fund has been shrinking because 96.45% of the money has been left in banks as deposits to earn only "negative interest" payments, according to the Chinese-language Economic Information Daily.
Public concerns over the security of the social insurance fund in China have risen to new levels after the revelation of corruption involving the fund in Shanghai several years ago and the drastic economic changes that have taken place in recent years.
That the banks are the safest place is usually given as the reason why the money is left in bank accounts. But many experts now point out that the emphasis on security is not enough because negative interest rates have been chipping away the fund at an alarming rate.
The erosion of the fund reached tens of billions of yuan in 2010 as inflation expanded to an annual rate of 3.3% and 5.4% in 2010 and 2011 respectively. The amount of money lost to inflation could soon surge to hundreds of billions of yuan, warned the experts.
Such dismal results are a natural result of the limited investment channels for the huge fund under its current management model and the level of financial maturity in China, acknowledged professor Sun Lijian, deputy dean at the School of Economics of Shanghai's Fudan University. The same results will continue unless the government revamps the investment tactics, he said.
The country is now faced with the critical and urgent issue of focusing on the investment yield of the social investment fund at the same time as safeguarding the security of the fund, said Zheng Bingwen, director of the Center for International Social Security Studies at the Chinese Academy of Social Sciences.
The view among experts is that to maintain and increase the value of the fund, the government has to reform its management by diversifying and internationalizing investment channels. The government should also consider entrusting the investment operations to specialized institutions. In order to diversify and spread investment risks around, the national social security fund should be allowed to make investments in overseas markets as well, they suggested.
Analysts said such new approaches can create tremendous investment opportunities for both Chinese and international investment consulting firms by providing financial investment services for the social security fund to generate higher returns to truly ensure the value of the fund.