The social security fund should play a bigger role in the capital market to help better nurture technological innovation and make due preparation for an aging society, said industry observers.
The National Council for Social Security Fund, which is an important participant in the Chinese capital market as well as a strong symbol of long-term and patient capital, will increase investment in technological innovation and new quality productive forces, Ding Xuedong, secretary of the CPC leading members group at the NCSSF, wrote in an article in the State-owned Study Times on Monday.
Apart from increasing equity investment in strategic and basic sectors, the NCSSF will step up support for the construction of the modern industrial system and the development of the real economy. It will team up with regulators and business organizations to further consolidate the links between technologies, industries and finance.
Technological innovation and the development of emerging industries usually face a long and bumpy road, said Yang Delong, chief economist of First Seafront Fund.
Patient capital, which should be also visionary, is thus needed to invest in the sectors representing economic transformation and technological advancements, he said.
Zhang Ming, deputy director of the Institute of Finance & Banking, which is part of the Chinese Academy of Social Sciences, said provincial-level social security funds now face strict restriction in investing in A shares.
If the proportion of such capital investable for the stock market is gradually increased, the A-share market, whose current relatively lower valuation indicates it is a good time to enter the market now, will embrace more long-term capital.
More importantly, the provincial-level social security funds are not too much concerned about the stock market’s short-term fluctuations. So, they will help stabilize the stock market and direct more capital to the undervalued industry leaders, he said.
On the other hand, the NCSSF should give full play to its role as a strategic reserve fund to prepare for China’s aging population, Ding said.
China, he explained, has entered a phase of moderate aging and is expected to confront deep aging around 2035. The country thus faces unprecedented urgency and pressure to build a bigger and stronger strategic reserve fund.
So, efforts will be made to complete China’s multilevel social security system by exploring new sources of capital and expanding the scale of the strategic reserve fund. The NCSSF will look for better returns via stable investment and capital management to consolidate the wealth foundation for the aging population, wrote Ding.
The total value of the equity assets managed by the NCSSF has exceeded 6 trillion yuan ($840 billion) by the end of 2023, Ding said.
Experts from China CITIC Bank said that most Chinese people still lack a clear understanding of how much wealth is enough to prepare for their twilight years. While their risk appetite is low, they have been eying too much from their short-term investments that see higher volatility. So, more investors’ education, products and investment advisory are needed to nurture people’s long-term investment acumen.
To better serve the goals of preparing for an aging population and boosting technological innovation, the NCSSF will improve its capabilities of professional investment by strengthening its research and analysis of the macroeconomy and the capital market.
The benchmark Shanghai Composite Index gained 0.49 percent to close at 2893.67 points on Monday while the Shenzhen Component Index added 0.08 percent.
Zhou Lanxu in Beijing contributed to this story.