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According to Zheng, if invested in the stock market, the pension fund will be safe from just about anything except a serious global financial crisis or nationwide systematic crisis. Even if there are some losses, the impact will be temporary and the losses will be floating ones that can be compensated for once the economy recovers.
Pi Haizhou, an independent financial columnist, said that keeping the pension fund away from the stock market is a responsible decision. Putting the fund into the stock market is a risky business, given that people's retirements are at stake.
However, it is hard to ensure the safety of the pension fund in the current stock market, because returns in the A-share market are even lower than the interest of bank deposits.
In the past decade, China's GDP registered a growth of 266 percent, while during the same period, the Composite Index of the Shanghai Stock Exchange witnessed almost no growth at all. Meanwhile, the number of listed companies increased by 1,000 and the circulated stock value surged 10-folds. It seems that collecting money has become the major function of the stock market. Statistics showed that since 1990, domestic A shares have raised 4.3 trillion yuan ($683.62 billion), offering total cash dividends of 1.8 trillion yuan ($286.17 billion).
According to Pi, it is obvious that the A-share market is financing-oriented, in which investors' interests are hard to protect. Although cash dividends have been stressed again and again since Guo took up the post of CSRC Chairman, the reality of low-investment returns has not been changed because of low quality and high IPO prices. Stocks are also intensively held by controlling shareholders or big shareholders at low cost.
"It's not a good time for the pension fund to enter the A-share market, so it is a responsible decision to keep it away from the stock market for the safety of the pension fund," said Pi.
Wu also expressed concern. "Who should be responsible if the pension fund suffered a loss in the stock market?" he said.
Wu learned from the Internet that countries whose pension funds are heavily invested in stocks, such as Ireland, Canada and Norway, suffered terribly during the global financial crisis. In 2008, the volume of global pension funds shrank from $31.4 trillion to $25 trillion.
On February 23, Hu Xiaoyi, Vice Minister of Human Resources and Social Security, said the national social security funds will be invested in multiple channels to form an investment portfolio, not a single channel of investment.
In fact, current regulations don't allow the pension fund to be invested in the stock market. According to Article 22 of the Provisions on the Management of Workers' Pension Fund, social security management institutions of all levels are prohibited from granting loans, commercial involvement, starting companies, stock purchase or providing financial guarantee for economic activities.
If the government wanted to invest the pension fund in the stock market, it would first have to revise the provision.
Since investing in the stock market is still in dispute, the question remains: How should China manage the fund to ensure its value?
Su Peike, chief researcher at the Institute for Public Policy Research of the University of International Business and Economics, said the question should be focused on the benchmark interest rate for one-year time deposit, which is 3.5 percent, and why the investment return rate is just 2 percent.
The reason, Su said, is that the management authorities puts a majority of the pension fund in demand deposit so that they can be drawn back flexibly.
"But with even the lowest calculating capability, the management authorities of the pension fund can figure out the exact surplus and how long the surplus will last, then save the surplus as a time deposit," said Su.
In China, there are more than 2,000 pension fund management institutions, most of which are city- and county-level social insurance agencies with the funds deposited in special government accounts. Therefore it is difficult to supervise so many institutions in an efficient way, and the investment rate is low.
Su said the top priority for pension fund management is making a nationwide pension fund strategy, improving the management capability and incorporating all the people into a unified social security system.
Zheng said the current pension fund investment mechanism must be reformed immediately. The reform can be carried out in three stages.
First, within one or two years, the pension fund should be completely invested in special treasury bonds and abolish all bank deposits. Since the inflation rate is expected to be about 4 percent, the interest rate of the special treasury bonds can be 4-5 percent.
Second, the investment management mechanism of the pension fund should be reformed. Uniform individual accounts can be set up to incorporate payment from both employers and employees to facilitate establishment of a "fund pool." Then the country can establish a nationwide management institution of the pension fund to carry out uniform and multiple investment of the pension fund in order to diversify investment channels and increase the investment returns.
Third, the reform should be further deepened to thoroughly solve the problem of low returns rate.
"If the current mechanism is not reformed, the depreciation of the pension fund will continue to embarrass us in even 10 years," Zheng said.
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