More shares in state-owned enterprises should be transferred to China's National Council for Social Security Fund to help the country close the gap between pension assets and liabilities, says NCSSF chairman Dai Xianglong.

In a speech on financial reform at the Shanghai International Financial Forum on Sunday, he argued that the government’s shareholdings in SOEs, especially banks, are too large.

“They can be reduced to 51%, which means a controlling stake," he says. "The part above this percentage can be transferred to NSSF [National Social Security Fund]. We won’t get involved in management, but acquire preferred shares.”

For instance, at the end of 2011, NCSSF held only 3.28% of Bank of China, slightly above the 2.12% held by Singapore's Temasek, as against 67.55% held by Central Huijin Investment, a state-owned investment company. And 71% of ICBC’s shares were held by the Chinese government, of which Central Huijin held 35.43% and the Ministry of Finance 35.33%.

The NCSSF's funding sources include the social security lottery, direct payments from the central government and 10% of IPO shares of all state-owned enterprise. At the end of 2011, total AUM stood at Rmb868.8 billion ($137 billion), and the fund had delivered an average yearly return of 8.4% between 2000 and 2011.

The size of the fund does not match the total scale of the Chinese economy, says Dai, and falls well short of bridging the gap between pension assets and liabilities. During an interview with Xinhua in 2010, he expressed the ambition to grow the fund to Rmb1.5 trillion by 2015.

At the International Pension Fund Investment Seminar held by NCSSF on Friday (May 25), Dai highlighted the key issues involved in achieving a long-term balance of payout from and contribution to China’s pensions.

The three issues are: clarifying the regulatory requirements of the system of combining the social pool pension and individual account pensions; precisely calculating the long-term pension fund gap; and preserving and increasing the value of pension funds through investment.

In March, Guangdong’s provincial government handed NCSSF a pension mandate of Rmb100 billion. And other provinces running larger surpluses – such as Jiangsu, Zhejiang and Shandong – are expected to follow suit.