Deals were signed yesterday by the National Council for Social Securities Fund (SSF) with nine provincial governments to help manage a new annual pension fund of 10 billion yuan (US$1.3 billion).

The fund, an allowance the central government granted to nine local governments as a supplement to their usual pension funds, will be managed and invested by the SSF for five years.

The change is seen as a positive move to better manage the nation's pension system especially after rising public concern following a multi-billion yuan pension fund scandal in Shanghai in October.

The SSF has so far only managed funds from the National Social Security Fund. That fund is made up mainly of the central government's fiscal allocations and capital and equity assets derived from State-owned shares.

The SSF promised a minimum of 3.5 percent investment return for the nine local governments. According to the deal it won't charge any management fees.

"The move is aimed at ensuring the pension fund be invested and managed more efficiently and safely as the SSF is a professional fund management team compared to local governments," Xiang Huaicheng, chairman of the SSF, said at yesterday's signing ceremony. "It's aimed at helping the reform of China's social securities," he added.

According to the agreement the SSF will cover any losses from its investment of the money. If the return on investment exceeds 3.5 percent they'll use the extra money as a provision to cover any future investment losses.

The majority of the fund will be invested in domestic capital markets such as bank deposits, treasury bonds and stocks. The investments will include both direct and trust investments. In all the SSF can invest in just 14 financial products.

The deal has the SSF managing the fund for five years. They're expected to sign more contracts with other local governments.

The nine provincial governments are: Tianjin Municipality, Shanxi Province, Jilin Province, Heilongjiang Province, Shandong Province, Henan Province, Hubei Province, Hunan Province and the Xinjiang Uygur Autonomous Region.

The SSF currently manages around 200 billion yuan (US$25.3 billion) in the National Social Security Fund. For the first time recently it identified 10 foreign fund managers to assist invest more than US$1 billion in overseas stocks and bonds.

Xiang said the social security fund would continually broaden its investment channels, diversify its risks and preserve and increase the value of the fund.

The government started reforming China's social security system 10 years ago. The SSF was established in 2000 for the management of the National Social Security Fund.

(China Daily December 21, 2006)