Two civil servants have been punished in connection with a pension fund scandal in Guangzhou, capital of south China's Guangdong Province.

The information was revealed by Cui Renquan, chief of Guangzhou labor and social security, while answering questions on Wednesday concerning the loss of more than 600 million yuan of the city's pension fund.

The two officials are Cai Yaokun, formerly deputy director of Guangzhou City administration for social insurance, the forerunner of Mr. Cui's present department, and the manager of the Guangzhou Social Labor and Insurance Co. identified by his surname as Liu.

The Guangzhou Social Labor and Insurance Co. was the predecessor of the present-day Guangzhou Center for Administration of Social Insurance Fund.

According to Cui, Cai, who was put in charge of social insurance fund work between 1996 and 2001, siphoned off money and invested it in highly risky businesses such as real estate between October 1998 and the spring festival of 2000.

Unable to recover the misappropriated money, Cai reportedly turned himself in to police in 2001. But he was convicted of bribe-taking in September 2002 and sentenced to 10 years in jail by the Intermediate People's Court of Guangzhou City.

Manager Liu, who bore a heavy responsibility in the affair, went into hiding but was arrested by police in December 2006.

Local prosecutors have completed an investigation into Liu's case and he will soon appear in court.

Briefing an investigative group from the Standing Committee of the Guangdong Provincial People's Congress on Monday, Cui said more than 600 million yuan worth of Guangzhou pension funds had vanished into thin air and could not be recovered.

Cui said the vanished pension funds were a problem left over from the mid-1990s.

A document issued in 1993 by the then Ministry of Labor encouraged officials to transfer a portion of their pension funds to state banks, trusts and investment companies.

This prompted the pension fund company affiliated with Cai's Guangzhou City administration for social insurance to invest some of their funds.

But the following year the ministries of labor and finance issued a new document banning the investment of pension funds on the open market and demanding the recovery of money withdrawn from pension funds for commercial operations.

In 1998, a total of 1.02 billion yuan of pension funds were still tied up in commercial operations and could not be recovered, according to Cui.

"As a matter of fact, efforts to recover the money began as early as 1996 when the city bureau for administration of social insurance was inaugurated, but little progress was made in this regard because 86 percent of the money was tied up in the real estate sector and debt relations were very complicated to sort out," said Cui.

In 2001, Guangzhou set up a special office tasked with recovering the pension funds, with a deputy mayor in charge. It also put 50 million yuan into a reserve fund to offset possible losses.

By March of this year, 360 million yuan had been recovered, and there are hopes for another 105 million yuan, according to Cui. A total of 18 criminal cases have gone to trial in relation to the affair.

The National Audit Office audited the misuse of the pension fund last year but their conclusions are not known.

City mayor Zhang Guangning commented: "If the pension fund cannot be recovered, the Guangzhou city government will follow the recommendation of the National Audit Office and use the reserve fund to make up the shortfall."

(Xinhua News Agency April 6, 2007)