CHINA: Stocks to shore up retirees

. BEIJING, China / People's Daily / June 22, 2009 By Li Hong, People's Daily Online Socialism now delivers. In a move to replenish a depleting reserve in China's pension funds, Beijing decided in mid-June to transfer one 10th stocks of any state-owned company, which wants to get listed home or abroad, to the ownership of a national old-age Fund. The measure is expected to fortify the country's ability to help tens of millions of retirees to go through their late or "golden" years. Incomplete calculations put the refund to the National Social Security Fund (NSSF) at roughly 90-100 billion yuan each year, if it decides to cash in on its holdings. Now, the Fund, established in 2000, has only a cushion of 560 billion yuan, in contrast to Japan's retiree fund topping US$1.2 trillion. According to China's law, the Fund will receive proceeds from the government, the corporate, and the individual workers, too. Though the country of 1.3 billion has been galloping economically for the past 30 years, worries linger. One of the biggest questions often posed by overseas China watchers lies in: Will China grow rich before it grows old? And, will Beijing continue to shirk its responsibility to take care of the rural aged? The stocks transferring arrangement, announced by the Ministry of Finance and the China Securities Regulatory Commission, is a bold one. Since the big behemoths, like Industrial and Commercial Bank of China, Sinopec, China Life Insurance, China Cosco and China Mobile, are all overwhelmingly owned by the state, it is natural that Chinese public should have access to the benefits these companies make. I would recommend an even larger proportion of the state shares be earmarked to NSSF, so that more retirees in both urban and rural areas could enjoy a high living standard sooner. The plan is also carefully choreographed by the authorities advised by a few good economists. By asking the NSSF to extend the stocks lock-up time by three years, it limits its negative effect on the market. Past hastening reforms had unnerved investors, who feared a hemorrhage would result from immediate government cashing-in. Now, the NSSF, under the custodianship of Mr. Dai Xianglong, former governor of the People's Bank of China, is widely expected to eye for fatter capital returns from the equity market even if the 3-year lock-up period expires. Hence, the new arrangement might boost China's stock market. The first trading day after the plan's revealing has proved investors welcomed the measure. Another design that the NSSF would obtain the yearly profits to be ensued with the 10 percent holdings of a company, but not sitting at the board, is also a wise approach. It avoids potential meddling into daily business management of a company, but the pressure from the public, especially retirees, for state-owned firms to turn in a nice balance sheet, will inspire firm managers to do more. The proportion of elderly people is now growing faster in China that in any major country, with the number of retirees set to double between now and 2019, when the number will reach 240 million. By mid-century, 460 million Chinese – about a third of the population – will be retirees. Some economists advocate that the central government in Beijing need to do preparation work for setting up a universal coverage, putting the country's 110 million rural aged under the umbrella. Though it is now facing one huge predicament, a diminishing state coffer because of the global financial crisis, it is braving the heat and making the right decision. Following 850 billion yuan allotment to reform China's medical system and phase in universal care earlier this year, the government has now moved to do something even harsher and more historic: to provide adequate pensions to all pensioners by 2020. The stock transferring plan, together with a viable Chinese capital market, will send it there. [rc] Copyright by People's Daily Online