Apart from the National Social Security Fund, another part of the welfare fund that has entered the capital market quietly is the occupational pension.

The fund, as a supplementary part of the basic pension system and commercial insurance, is the voluntary, private pension system run by some employers.

The Ministry of Labour and Social Security has released a temporary regulation on occupational pensions, which will take effect next month.

It said the employers can authorize some qualified institutions to manage the pension and conduct investments.

Some parallel rules on the detailed standards of choosing fund managers and principles during such investments have also been approved by insurance, securities and banking authorities and are expected to come out soon.

They will also further clarify requirements on risk control and information disclosure during asset handling, as well as market entry and withdrawal channels, helping build a comprehensive legal framework in the sector.

Occupational pensions first emerged in China in 2000. The scale has been limited due to policy obscurity, estimated at about 27 billion yuan (US$362.4 million) by 2002.

However, it has become a new favourite among securities houses, asset management companies, insurers and even trust companies in China, all of whom have seen opportunities in the business.

In some major cities, occupational pensions have already entered the bourses.

The Shanghai Occupational Pension Development Centre, for example, has chosen a number of securities houses, including China Galaxy, Xiangcai and Shenyin & Wanguo, to help manage its assets and has held shares in a number of listed companies, statistics revealed.

Some trust companies have also undertaken trust projects for the occupational pension of some corporate customers. 

Banks are also enthusiastic to become agents and further develop the business.

Shenzhen-based China Merchants Bank, for example, signed a co-operative agreement with American International Group (AIG) last month to jointly develop occupational pension management in China.

According to the agreement, AIG will introduce its expertise and help the Chinese bank serve local enterprises together.

Though foreign institutions are still not allowed to provide occupational pension management services independently in China, such local partnerships certainly open back-doors and prepares the market for the formal foreign entry.

Li Hao, vice-president of China Merchants Bank, said the alliance would also pave the way for a future launch of an occupational pension management joint venture.

Experts have estimated China's occupational pension to expand by 100 billion yuan (US$12 billion) each year when the market mechanism is fully launched and more tax incentives and other policy supports are provided.