China is accelerating the transfer of government holdings in State-owned enterprises to the social security fund, as part of its efforts to augment capital resources and bolster the country’s pension system.
Last month, the Ministry of Finance transferred shares worth about 150 billion yuan ($21 billion), from the three large State-owned banks and the biggest insurance group, to the National Council for Social Security Fund.
On Sept 20, the ministry said that it would complete the share transfer of qualified central government-owned entities by the end of this year. Assets worth 600 billion yuan from 59 central government-owned enterprises will be injected into the social security fund, it said.
The ministry is making specific management rules for the transferred assets, jointly with other government departments, Finance Minister Liu Kun said at a recent conference.
Before the management rules kick in, the national social security fund can invest cash earnings from the transferred shares into bank deposits and Treasury bonds in the primary market, or increase shareholdings of these State-owned entities.
As the asset receiver, the National Council for Social Security Fund will obtain dividends of the transferred shares from these financial institutions, which will in turn bolster the fund’s earnings, according to a statement on the ministry’s website.
Some analysts predicted that the share transfer program may add 3 trillion yuan to 5 trillion yuan on the 2.24 trillion yuan national social security fund.
On Sept 25, two listed commercial banks – Agricultural Bank of China (ABC) and Industrial and Commercial Bank of China (ICBC) said that the Ministry of Finance has transferred 10 percent of its shareholding in both banks to the National Council for Social Security Fund.
After this transfer, the ministry held 35.3 percent of ABC shares, down from 39.2 percent, while its stake in ICBC declined to 31.1 percent from 34.6 percent. The ministry remains the second largest shareholder of the two commercial banks, according to data from Moody’s research.
Cental Huijin Investment Ltd, a State-owned institutional investor, was still the largest shareholder of the two largest banks, with 40.4 percent of ABC and 35 percent of ICBC, the report said.
Ray Heung, senior vice-president of the financial institutions group Moody’s Investors Service, said the transfer of shares is credit neutral for both banks because the Ministry of Finance and the national fund are both controlled by the government. “This share transfer will not alter the two banks’ operations.”
Following that, Bank of Communications and the People’s Insurance Company of China transferred shares worth 10.7 billion yuan and 26 billion yuan respectively.
“The advent of an aging society and the resulting pension fund shortage are the ‘gray rhino events’ that China must face, and the share transfer is a major measure to cope with the risk,” Wang Xin, head of the research bureau of the People’s Bank of China, the central bank, said at a seminar.
“The share transfer is just the first step. It is more important to improve the investment regime of the social security fund, and reinvest the transferred shares as soon as possible,” said Wang.
The recent share transfer cases were in line with a plan announced by the State Council in November 2017, wherein it had decided to transfer part of the government’s shareholding in the State-owned companies to the national social security fund. A State Council executive meeting on July 10 decided to accelerate the share transfer process this year.