China seeks West's help in pension crisis
By Mark Kleinman, Asia Business Editor
Last Updated: 12:24am BST 27/10/2006
Comment: Demographics may be a curse for China and India
China's $30bn state pension fund is on the verge of appointing overseas firms to manage its assets for the first time as the country accelerates efforts to avert a demographic timebomb.
The National Social Security Fund (NSSF) is in detailed negotiations with some of the world's largest fund managers, including BlackRock and State Street Global Advisors about initially managing up to $2bn (£1.1bn) in assets.
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The appointments, which people close to the situation say could be confirmed by the end of the year, follow the NSSF's decision earlier this month to select Citigroup and Northern Trust as the fund's global custodians.
The shake-up in state pension fund management, which was approved by the Chinese government earlier this year, has been sparked by fears about the lack of state retirement provision for the elderly. Estimates suggest that as many as 15pc of China's 1.3bn population will be over the age of 60 within 15 years, a legacy of the one-child policy introduced during the 1970s.
According to an academic study published two years ago, by 2040 there are likely to be 397m Chinese of retirement age - more than the combined current population of Britain, France, Germany, Italy and Japan.
Although the NSSF's value is growing at about 20pc every year, it is not sufficient to keep pace with the number of retirers for whom it is supposed to provide pensions. Figures produced by McKinsey, the management consultants, forecast a pension deficit in China of $100bn by 2010.
The NSSF was established in 2000 as a "fund of last resort", and derives its income from investment proceeds, money injected by the central government and windfalls from the sale of shares in state-owned companies. The $21bn flotation of Industrial & Commercial Bank of China, shares in which are due to begin trading in Hong Kong and Shanghai today, is likely to prove especially lucrative for the NSSF.
In addition to BlackRock and State Street, Pimco and Templeton are understood to be in the frame to win part of the fund management mandate, which is understood to be divided into fixed-income, global equities and Asian equities. |
