Guangdong Publicly Says It Has “huge” Hidden Debts in Pension Fund; About half of China’s 31 provinces are unable to pay their retiree costs and rely instead on financial transfer from the central government

Guangdong Publicly Says It Has “huge” Hidden Debts in Pension Fund

03-29 15:15 Caijing

It says debts were cumulated for one critical reason: a large number of retirees who were entitled to a pension without contributions when China first launches its pension system.

The government of Guangdong has expressed concerns about its pension liabilities, saying the provincial government’s pension fund is running up “huge” hidden debts, opening a peephole into the patchy pension system in the world’s second-biggest economy. The government will seek to solve the many problems in the pension fund by raising financial subsidies and exploring ways to invest the money, government officials said in an official report on Thursday. About half of China’s 31 provinces are unable to pay their retiree costs and rely instead on financial transfer from the central government. Pension shortfalls could reach 18.3 trillion yuan in 2013, and 68.2 trillion by 2033, according to a recent report by economists at Deutsche Bank and the Bank of China. What makes things even worse is that China is facing a timebomb of aging population, with a sharp rise in those over age 65, the proportion of which stands at 8.2 percent now, and is expected to rise to 30 percent by 2064. The government report of Guangdong, a southern province topping total GDP rankings in among all provinces, did not reveal the amount of its deficit and reasons making the debts non-explicit. It says debts were cumulated for one critical reason: a large number of retirees who were entitled to a pension without contributions when China first launches its pension system. Without financial transfer from governments, the retirees are actually supported by young Chinese employees, it said. Pension revenue was close 250 billion yuan in Guangdong in 2012, compared with an expenditure of just below 150 billion. China’s pension system was designed as a combination of an inclusive welfare system supported by state subsidies and individual mandatory savings by both employees and employers whose contributions vary in regions. Budget expenditures in social network totaled 98.24 billion yuan in Guangdong in 2011, the report shows, tripling those in 2006. Its portion to general budget also hiked to 14.64 percent in 2011 from 12.53 percent five years ago. The government entrusted the country’s national security fund to “invest and manage” its pension fundin early 2012, as an alternative to state fiscal support to “retain and grow” value, the first and the single case in the country as local governments are loath to hand over their cash. Government officials did not disclose income of the investment in the report, but pledged the government will ensure the money is safe in following up management.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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