A Major Project to Win the Hearts of the People

From: English Edition of Qiushi Journal Updated: 2011-09-20 11:41
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  It has been 10 years since the National Social Security Fund of China was established. Emerging at the right historical juncture, the National Social Security Fund has gained considerable strength in the decade that has passed since its foundation. In this time, the fund has played a major role in enhancing China’s social security system, safeguarding the healthy operation of the capital market and promoting the rapid development of both the economy and society.

 Emerging at the right historical juncture: a wise policy decision of major strategic significance

 The CPC Central Committee and the State Council have always attached great importance to the development of a social security system for China. In the mid to late 1990s, insurance systems for old age support, medical care, unemployment, workers’ compensation and maternity were successively established in urban areas. These insurance systems were also complemented with a system of basic cost of living allowance for urban residents. After deciding to establish a unified system of basic old-age insurance for enterprise employees, the State Council published Decision of the State Council on Improving the System of Basic Old Age Insurance for Employees of Enterprises in 2005, further clarifying that employees would pay 8% of their salaries into a personal account for basic old-age insurance, while enterprises (employers) would pay a fee equal to 20% of employee salaries into a social pool. These measures have provided a basic living assurance for the masses of the people, driven forward reforms and development, and safeguarded social stability. 

 Previously, China practiced a system of enterprise insurance. Owing to the fact that there were no previously accumulated reserve funds when the old age insurance system was launched, we had no choice but to commandeer funds from personal accounts, which should otherwise have been used as accumulation funds, in order to make current insurance payouts. In some places, there were still shortfalls even after all of the funds in personal accounts have been used to make insurance payouts, meaning that support from the central government was required. Moreover, as the number of workers laid off during the reform and reorganization of state-owned enterprises increased and the need for basic cost of living among urban residents became increasingly prominent, unemployment insurance payouts and subsidies to guarantee the basic cost of living also came under enormous pressure in certain places. In an effort to address these problems, the CPC Central Committee and the State Council decided to establish the “National Social Security Fund” on August 1, 2000. The decision also involved the establishment of the “National Council for the Social Security Fund,” which would be responsible for the management and operation of this fund. This was an important measure in the reform and improvement of the social security system. It was a major initiative of the Chinese government to win the hearts of the people by putting the people first, running the government for the people, ensuring the livelihood of the people and safeguarding the long-term interests of the people.

  Two senior citizens of Yangda Township in Doilungdeqen County of Lhasa receive their first basic old age pension payments from the new rural pension insurance system November 4, 2010. A ceremony was held on this day in Lhasa to mark the beginning of distribution of old age pension payments from the new rural pension insurance system in Tibet. Sixty rural senior citizens 60 years and older received their first pension payments. Tibet began trial operation of the new rural pension insurance system in November of 2009, and by the end of 2010, the system has covered all rural residents in the counties and cities of Tibet. / Photo by Xinhua reporter Hu Xing

 Since its establishment, the National Social Security Fund has received significant support from the CPC Central Committee and the State Council, which have adopted a number of measures to continuously strengthen the fund. At the end of the same year in which the fund was established, the central government allocated a total of 20 billion yuan to the social security fund from central finance, which was a significant amount considering the limited scale of central government funds at that time. In June of 2001, the state promulgated Interim Measures for Reducing State-owned Shares to Raise Social Security Fund. The measures stipulated that revenue from the sale of certain state-owned assets would be the basic source of revenue for the National Social Security Fund. The Third Plenary Session of the 16th CPC Central Committee included “adopting various measures including the transfer of some state-owned assets in accordance with the law to substantiate the social security fund” into the Decision of the CPC Central Committee on a Number of Issues on Improving the Socialist Market Economic System. In June of 2009, the Ministry of Finance, State-owned Assets Supervision and Administration Commission, China Securities Regulatory Commission and the National Council for Social Security Fund jointly issued Measures for the Transfer of Some State-owned Shares from the Domestic Securities Market to the National Social Security Fund under the approval of the State Council. These measures established a stable fund-raising channel for the National Social Security Fund. 

 Going with the tide: outstanding achievements in the investment and operation of the National Social Security Fund

 The first major achievement is in the gradual expansion of the fund management scale. The CPC Central Committee and the State Council have clearly stated that various measures should be adopted in accordance with the law to raise social security funds. Following more than a decade of efforts, the main sources of funds at the present include: allocations from the central budget, lottery public welfare funds transferred from the central government, funds or stock assets from the sale or transfer of state-owned stocks, as well as funds and investment earnings raised by other methods as approved by the State Council. By the end of 2009, the scale of assets managed by the National Council for the Social Security Fund had expanded to 776.6 billion yuan. In addition, the National Council for the Social Security Fund has also been entrusted to manage personal account funds for the basic old-age insurance for enterprise employees in nine trial provinces and municipalities, including Tianjin. The total amount of funds involved is 43.959 billion yuan.

 The second achievement is in the continuous widening of the scope of investment and the rational allocation of assets. As the capital market has continued to develop, the scope of investment and the diversity of investments made by the fund have been actively increased under the guidance of the relevant departments of the State Council. In the early days of the fund, the main forms of investment were bank deposits and government bonds. Since then, the scope of investment has been gradually expanded to cover 19 investment varieties in 3 major categories, namely stocks, bonds and private equity. The scope of investment now covers basically all investment products generally acceptable for pensions. In addition, the range of investment has also been expanded to include overseas investments in addition to domestic investments. By the end of 2009, of the total assets managed by the National Council for the Social Security Fund, fixed earnings products accounted for 40.67%, overseas and domestic stocks accounted for 32.45%, industrial stocks accounted for 20.54% and cash and miscellaneous assets accounted for 6.34%.

 The third achievement is in the formation of a secure and effective decision making system and management system for investments. The National Council for the Social Security Fund has made constant efforts to establish and improve a safe and effective system for the management of investments in line with the demands of the CPC Central Committee and the State Council. It has established an investment approach characterized by long-term investment, value investment and responsible investment, developed a sound management framework based around asset allocation, implemented an investment mode combining direct investment with entrusted investment, and formed a policy-making system and mechanism in which the Board of the Council determines development strategies and major matters while two special professional committees for investment decision-making and risk management are responsible for respective investment decisions.

 The fourth achievement is in the collection of stable and sound investment returns. Based on its capacity in risk control, the National Council for the Social Security Fund has stayed close to the market, conducted conscientious studies, made prudent decisions and engaged in meticulous operations, thereby successfully maintaining and increasing the value of the fund. By the end of 2009, the fund had gained accumulated returns on equity investment of 244.8 billion yuan since its establishment, representing an average annual rate of return of 9.8%, which is 7.7% higher than the average annual inflation rate for the same period.

 The fifth achievement is in the continuous improvement of the legal environment. Over the past decade, the legal environment for the management of fund investments has gradually been improved. The Social Insurance Law (draft), which is currently under deliberation, has made provisions on the nature, sources, payment, management and supervision of the National Social Security Fund. In addition, the State Council has included the Rules and Regulations on National Social Security Fund in the legislation plan for this year. Upon promulgation, these rules and regulations will address a series of major issues, including the positioning of the National Council for the Social Security Fund. In order to address demands for the development of the market economy, work is already underway on the amending of the Interim Measures for Investment Management of the National Social Security Fund. With the promulgation and implementation of these laws and regulations, the investment and management of the National Social Security Fund will be further integrated into the framework of the law and the working environment will become increasingly stable and predictable. 

 Successful experiences: pursuing the development of a social security fund with Chinese characteristics

 First, we have persevered in making reforms and innovations and had the courage to try new things. Building a social security system suited to the socialist market economy in China is a pioneering undertaking. The establishment of a national social security fund is even more of a new concept, and we have no prior experiences on which to draw. The National Council for the Social Security Fund has maintained its commitment to deepening reforms, trying new things and innovating. Through the course of practice, it is identifying a unique means of promoting development and growth.

 Second, we have committed ourselves to standard operations, openness and transparency. After the foundation of the National Social Security Fund, the National Council for the Social Security Fund defined internal supervision mechanisms, disclosed fund investments promptly and took the initiative to subject itself to the supervision of the Ministry of Finance, the Ministry of Human Resources and Social Security as well as other sectors. These practices fell in line with the demand put forward by the State Council that the social security fund should be market oriented, open and transparent. The members of the three terms of boards of the council have all been senior and well-known personages with rich experience in economic work. The main leaders of the fund have all acted as senior officials in national financial departments on a long-term basis. In addition, all employees are professionals that have gone through a stringent selection process. These conditions have ensured the standard, open and transparent management of the National Social Security Fund.

 Third, we have put safety first and ensured stable operations. The National Social Security Fund represents the livelihood of the people for the future. The National Council for the Social Security Fund has adhered to the principles of long-term investment, value investment and responsible investment, remained committed to the policy of prudent investment, strictly implemented regulations and procedures in investment management and always put safety first. This has allowed it to ensure the maintenance and growth of the fund.

 Fourth, we have adopted a practical approach and moved with the times. Since the foundation of the National Social Security Fund, we have proceeded in adherence to national conditions and remained committed to a high starting point, high standards and high level of development. We have extensively drawn from the experiences of international pension investors, adopted rational technical means and operational concepts, and established advanced investment mechanisms and supervisory systems that mirror international pension investors. This has allowed the fund to secure leading investment gains among its peers and gain a prestigious reputation in China and abroad.

 Long-term objectives: striving to build a first-rate social security asset management organization

 The social security system includes social insurance, social aid and social welfare. Wherein, social insurance further consists of old age insurance, medical insurance, unemployment insurance, maternity insurance and workers’ compensation. Old-age insurance is undoubtedly the most complex and most important aspect of the social security system. In 2009, the number of people aged 60 years and above in China reached 167 million, accounting for 12.5% of the total population. By 2015, this proportion will reach 15%. By the 2030s, the aging of China’s population is expected to peak, and the shortfall in pension income and expenditure will continue to increase. Therefore, we need to further expand the scale of the National Social Security Fund to satisfy part of the need for old-age insurance when the aging of the population peaks and satisfy other social security needs approved by the State Council under special conditions, such as major natural disasters.

 Faced with new opportunities and challenges, we need to further improve the management of National Social Security Fund investments and make efforts to establish the National Council for the Social Security Fund as a first-rate social security asset management organization.

 We need to enhance our sense of responsibility and mission in ensuring the sound investment and operation of the National Social Security Fund. The National Social Security Fund has a bearing on the livelihood of the people, social stability and the long-term peace and order of the state. Properly managing every cent of the people’s livelihood is a grand mission and a responsibility of historical proportions that has been entrusted to us by the state. With a high sense of mission and responsibility, we must bear the great trust in mind, make prudent investments, strengthen our contingent and ensure the fulfillment of our tasks.

 We need to continue to raise funds through multiple channels and continuously expand the scale of the fund. We should continue to standardize and systemize the sources of revenue for the fund in line with the principles of “manageability, sustainability and growth.” In addition, we need to further consolidate the existing channels for the raising of funds, make greater allocations and develop other sources of funding. We need to gradually expand allocations from the central budget and strictly implement the transfer of domestic state-owned stocks. The scope and scale of entrusted management of personal accounts in local old age insurance should also be increased gradually. We shall strive to take the total assets of the National Social Security Fund past 1.5 trillion yuan by the end of the 12th Five-Year Plan period.

 We need to adhere to the policy of making prudent investments so as to ensure long-term and stable returns for the National Social Security Fund. In managing the National Social Security Fund, we need to correctly balance the expansion of the fund and the optimization of the asset structure, the increase of investment returns and the prevention of risks. This will involve the establishment of a safe and effective system for investment decision making and risk management. Owing to the long-term nature of the National Social Security Fund, we need to respond to markets and rationally allocate assets in order to secure long-term and stable earnings within acceptable risks. In addition to ensuring that long-term investment returns are significantly higher than the rate of inflation in the same period, we should also strive to excel among our peers and secure leading returns. 

 We need to persevere in reforming the investment management system and improving investment operation mechanisms. We need to establish operational mechanisms for investments and supervisory systems that are professional and internationally oriented. In consideration of the realities in China, we need to determine the nature of social security fund organizations, give full play to the role of the Board of the Council, rationally divide the functions of decision-making and implementation in investment practice and enhance our capacity to manage investments. We need to reform existing financial and human resources management systems and improve incentive and constraint mechanisms for the management of personnel.

(From Qiushi, Chinese edition, No.18, 2010)


Note: Author: Chairman of the National Council for Social Security Fund of China 

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