10% of State-owned Enterprise Equity Will Be Used to Plug Pension Fund Gaps


China’s State Council has announced that it will use a chunk of state-owned enterprise (SOE) equity to fill in the sizeable gaps in the country’s pension funds.

The State Council issued the “Implementation Plan for Transferring a Portion of State-owned Capital to Supplement Social Welfare Funds” (划转部分国有资本充实社保基金实施方案) over the weekend, which indicates that the Chinese government will start transferring a portion of equity in central and local SOE’s, as well as state-owned share-controlled enterprises and financial institutions, to China’s social welfare funds prior to the year’s end.

The Implementation Plan is the third directive released by China’s State Council concerning the use of state-owned assets to supplement social welfare funds, marking an expansion upon its two preceding documents.

While the two preceding documents made reference to the transfer of 10% of new shares from IPO’s or secondary public offerings, the new Implementation Plan makes reference to the transfer of 10% of all state-owned enterprise equity.

The plan will be implemented in two stages, with the first involving the selection of central SOE’s and provincial SOE’s for trial schemes prior to the end of the year.

The central SOE’s will include three to five companies under the watch of the State-owned Assets Supervision and Administration Commission (SASAC), as well as two central state-owned financial institutions.

The second stage will involve phase-based equity transfers starting in 2018 based on the experiences of the first stage trials.

The plan will involve the transfer of a huge volume of assets given the sheer scale of China’s state-owned enterprise sector, which includes the four big state-owned banks, as well as energy giants such as CNOOC, PetroChina and Sinopec.

China’s already faces a major challenge funding its pension liabilities as the country’s demographic structure undergoes rapid change.

Dong Dengxin from the Finance and Securities Research Institute of Wuhan Science University said to Securities Times that the workers basic pension insurance funds of seven Chinese provinces have already seen revenues fall short of expenditures in 2017.

According to Dong the slated transfer of a portion of state-owned assets to social welfare funds will primarily involve equity in central and local SOE groups, as opposed to individual listed concerns.

The example that Dong gives is that of China Baowu Steel Group, which has a large number of listed and unlisted subsidiaries, which will not be individually involved in the transfer process.

Zhu Fuling, chair of the Social Welfare Research Centre of the Central University of Finance and Economics in Beijing, said that the State Council plan will only change the equity structure of SOE’s and not significantly impact capital markets.

Zhu notes that social welfare funds will inherit the duty from prior owners to refrain from re-selling any equity stakes for a three year period, and that individual listed SOE’s involved will be few in number given that the plan targets large-scale conglomerates.