The rules governing what Chinese pension funds can invest in are too narrow and hinder efforts to meet the funding challenges of an ageing population, according to one of its top officials.
The National Social Security Fund (NSSF) had total assets of Rmb 2.22 trillion ($319.6 billion) as of the end of last year. The NCSSF manages provincial Public Pension Fund (PPF) mandates as well as the central NSSF.
That the pension authorities in China are so guarded partly reflects the high volatility of the country's stock markets, which are dominated by retail investors. So for a long time, the fund was not allowed to diversify its investments and was limited to just treasury bonds and bank deposits, Li said.
China's NCSSF manages the bulk of assets that make up the first pillar of China's retirement savings system -- compulsory pension contributions made by individuals and managed by the state. Its assets comprise the reserve NSSF and, since 2015, the PPF mandates of different provinces.
In 2014, two-thirds of its assets were kept in cash or deposits. But the biggest restrictions applied to PPFs, which were only allowed to invest in Chinese government bonds and cash.
From 2012 to 2016 PPFs generated an average annual return of just 2.5%, according to a KPMG report published in November 2017. The report blamed the sluggish performance of Chinese pension assets on the investment restrictions that directed money towards low-risk, low-return assets and the allocation caps on certain asset classes.
To boost PPF investment returns, some of their retirement assets were brought under the aegis of the NCSSF in 2015 and their investment scope was widened to include listed company shares, with a 30% allocation cap.
As of June-end 2018, a total of 14 provinces, regions, or municipalities had entrusted NCSSF with assets totalling Rmb585 billion ($84.2 billion), of which Rmb 371.7 billion was entered into NCSSF's accounts and invested. The investment yield generated on these assets last year was 5.23%, highlighting the improvement made on previous years.