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Politics

China bolsters pension fund as fears grow over 2035 doomsday

Beijing moves $76bn in state-owned shares to strengthen social security backbone

One of China's two main public pension funds will go dry by 2035, an April report estimates.   © Reuters

BEIJING -- China is hastening the transfer of shares in state-owned companies to its main pension fund in a bid to quell widespread panic felt by younger Chinese over projections that the account will be broke by 2035.

Beijing hopes moving the shares to the fund could bolster its reserves enough to keep it going for longer. But many younger Chinese are pessimistic that the scheme will survive by the time they retire.

"We are considering transferring shares in 35 companies to the Social Security Fund," said Peng Huagang, secretary general of the State-owned Assets Supervision and Administration Commission, on Tuesday.

The shares in question are worth a total of 521.7 billion yuan ($75.9 billion). Another 82.1 billion yuan in shares from 18 companies have already been cleared to be transferred.

That move will help buoy the urban workers' pension fund, to which 340 million Chinese subscribe and is projected to fall into the red in 2028 with an initial deficit of 118.1 billion yuan, the Chinese Academy of Social Sciences said in an April report.

Plugging the shortfall will suck the fund completely dry by 2035, the report said. This means that the government will have to make up for the deficit, which is expected to grow to 11.28 trillion yuan by 2050, entirely out of its own budget for every year thereafter.

The actual situation could prove even more dire, since the 2035 estimate assumes the government will continue subsidizing the pension scheme at the level it does now.

The fund is currently on track for a 106.2 billion yuan surplus with a balance of 4.26 trillion yuan for this year.

Under the Chinese model, each province is responsible for managing its own portion of the pension fund. The report forecasts that Heilongjiang, Qinghai, Liaoning and Jilin provinces will run out of money this year. Twelve more, including economic powerhouses like Shanghai, are expected to follow by 2028.

Many advanced economies review the long-term standing of their pension schemes once every few years -- but China has not. Even in the private-sector, the only big study was conducted in 2012 by Ma Jun, the former Deutsche Bank chief China economist who is now on the policy board of the People's Bank of China, and his associates.

Given this backdrop, the April report by the government-affiliated CASS has caused a splash particularly among younger generations. Online forums have been filled with posts concerned that those born in the 1980s will receive no pension.

China's State Council, or cabinet, decided in November 2017 that 10% of a company's stock can be held by the social security fund. Ten percent of shares held by State-owned Assets Supervision and Administration Commission is worth 6.6 trillion yuan.

But state-owned companies have dragged their feet, worried that the pension fund will want to have more say over management. Things are only moving forward after the State Council decided to promote the share transfers on July 10.

The government had said the April report was not a cause for worry, citing the pending transfers. But the public remains concerned.

Reduced corporate contributions to social security has fueled fears as well. Chinese Premier Li Keqiang announced in March that employer contribution rates would be lowered to 16% from up to 20%.

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