From Market, issue no. 409, March 9, 2009
Original article: [Chinese]

China's National Social Security Fund, which sources said has occasionally been used as a stabilization fund for the Chinese stock market, saw losses in its equity investments in 2008.

The negative 6.75% in returns on equity investments were the fund's first such losses since its founding eight years ago.

The figure was low compared to most Chinese institutional investors, which saw 50% losses last year.

The National Council of Social Security Fund (SSF), which steered the country's national social security fund assets, attributed the relatively small losses to its risk control system.

The SSF has since become more cautious in purchasing stocks, has reduced investments in fixed-income products, and has begun trending more toward long-term equity investments, such as taking stakes in state-owned firms.

Control Risk, Stabilize Economy
During the stock price slump in 2008, the annual return on equity investment for the SSF plunged to negative 6.75%, losing 62 billion yuan and 39 billion yuan in transactional monetary investments and equity investments respectively.

However, other investment gains made up the losses, and brought the SSF a 5.25% net return on investment. Since its founding in August 2000, the SSF has made 160 billion yuan in returns, with total assets amounting to 562.5 billion yuan.

According to sources at the fund, the SSF had weaved strong risk control system, which set up target zones for asset allocation. In the 2007 bull market, due to the proportion of its portfolio investments exceeding its targeted upper limit, the SFF reduced its holdings there and thus balanced its investment risks.

But aside from its own investment strategies, an industry insider who wished to remain anonymous told the EO that when bear markets set in, China's social security and insurance funds were ordered by the government at times to buy stocks and thus stabilize the stock market.

At this point, they functioned as an invisible stabilization fund, the above source added.

As for the SSF's cautious attitude towards stock investment, Liu Mingjun, a fund analyst at Cinda Securities didn't think that meant the SSF was bearish on the stock market.

On the contrary, the SSF stance in increasing direct investment in state-owned firms would be good news to the blue chips that the SSF bought in, he added.

Temptation from Equity Investment
At the first annual meet of China's equity investment funds Last June, Dai Xianglong, the SSF's chairman, stated that the SSF could allocate another nearly 10% of its total assets, or some 50 billion yuan, to invest in private equity. This would make the fund's equity investment reach 120 billion yuan when combined with its already nearly 20% of total assets staked in the business sector.

"With the expansion of the pilot projects for industrial investment funds and the rapid development of the private equity business, developing equity investment funds will be conducive to maintaining and increase value for long-term assets, and help cultivate high-quality listed companies," the SSF said.

The SSF had already accumulated 4 years experience in equity investments.

In 2004, the SSF invested in China-Belgium Direct Equity Investment Fund. After two years, it initiated the Bohai Industrial Investment Fund Management Company and meanwhile promised to inject 2 billion yuan in Hony Capital and Dinghui Investment Management, respectively.

In addition, the SSF had poured 10 billion yuan in each of Bank of Communications, Bank of China, Industrial and Commercial Bank and Jinghu High Speed Railway Corporation.

Furthermore, the SSF has been approved by the State Council to participate in the shareholding reform of the National Development Bank and Agricultural Bank of China as a strategic investor.

One industry expert told the EO that in the future, the SSF would likely invest increasingly more with government-backed, industry-focused investment funds in the future. These funds, they said, were often charged with guaranteeing China's economic growth, and would see policy limits on their actions.