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China: Firms to sign pension pact

Shanghai Daily News

 June 3, 2003

Shanghai, China - Six domestic fund management firms are expected to sign agreements with the National Council for Social Security Fund this week, which will allow them to invest a greater proportion of the pension fund in China's stock markets.

The fund is expected to give each of the six fund management companies a proportion of the money ranging from 2 billion yuan (US$240.96 million) to 3 billion yuan to invest in the two local-currency Class-A share markets in Shanghai and Shenzhen.

Harvest Fund Management Co Ltd, one of the six firms, said it has received the soon-to-be-signed agreement detailing requirements for the investment strategy from the social security fund council.

"Earlier, we have got only a qualification. After we sign the agreement, we can manage the money which will be allocated to us," said Zhou Xiaoming, Harvest Fund's spokesman.

Xu Bo, spokesman from the council of the social security fund, declined comment.

Given the amount of money that will possibly flow in, analysts said it is not likely to add much liquidity into the market.

"That's not a considerable amount of capital, which accounts for only about 3 percent of the market capitalization. I do not expect the market to get a shot in the arm," said Yu Hao, analyst of China Euro Securities Ltd, a joint venture brokerage house between Xiangcai Securities Co Ltd and CLSA.

Yu also noted the news has already been digested, referring to the rally seen over the past one month in the blue-chip stocks.

"Besides solid earnings performances, stocks with good liquidity are also a priority option for the pension fund," he added.

In its annual report released last Saturday, the social fund, which is intended to reform the country's dilapidated pension system and subsidize laid-off workers, has 124 billion yuan in total assets. The council, based in Beijing, is now headed by former Finance Minister Xiang Huaicheng.

Besides Harvest Fund Management, the council in December also chose five other fund management firms to manage the investments in the stock market, including China Southern Fund Management Co Ltd, China Asset Management Co Ltd, Boshi Fund Management Co Ltd, Changsheng Fund Management Co Ltd and Penghua Fund Management Co Ltd.

The social security fund is now allowed to allocate up to 40 percent of its assets into the stock market, according to a specific rule jointly released by the ministries of finance and civil affairs at the end of 2001.


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