In 2017, the State Council issued the Implementation Plan for Transferring Part of State-owned Assets to the National Social Security Fund (the Implementation Plan for short below). According to the Implementation Plan, the central and local state-owned and state-controlled large and medium-sized enterprises and financial institutions shall be covered in the scope of transfer. 10% of the state-owned equity shall be transferred. In the second half of this year, the transfer of state-owned assets to the National Social Security Fund has been expedited at full speed. Recently, the pace of transferring state-owned assets to the National Social Security Fund has been significantly picked up. On the evening of September 25, the Agricultural Bank of China and the Industrial and Commercial Bank of China issued an announcement to transfer 10% of their shares to the National Council for Social Security Fund. After that, the PICC, Bank of Communications and other institutions also followed up. GLGA Research Institute focuses on the transfer and straightens out the reasons, key points and comments of all parties in this transfer. 

Five departments have made clear to finish the transfer of state-owned assets to the National Social Security Fund by the end of 2020. 

Prior to this, the Ministry of Finance, the Ministry of Human Resources and Social Security, the State-owned Assets Supervision and Administration Commission (SASAC), the State Taxation Administration and the China Securities Regulatory Commission (CSRC) issued together the Notice on Comprehensively Promoting the Transfer of Part of State-owned Assets to the National Social Security Fund (the Notice for short below) to specify the operation route of the transfer of state-owned assets to the National Social Security Fund and define the "schedule" to finish the transfer by the end of 2020. This means that the transfer of state-owned assets to the National Social Security Fund initiated in 2017 has stepped into the "accelerating and sprint stage". 

In the face of the challenges of aging population and people's demands for improved pension and concerns about the sustainability of the pension funds, relevant experts said that the transfer of state-owned assets is a proactive move. Accelerated transfer of state-owned assets to the National Social Security Fund will give employees "reassurance". 

YANG Fan, chief analyst of policy research of CITIC Securities, said that the transfer of state-owned assets to the National Social Security Fund is expected to become one of the benchmarks of integrated system reform. It is mainly reflected in the following four aspects. 

It will help improve the weakness of the pension. The transfer of state-owned assets has greatly improved the asset reserve of the National Social Security Fund. Based on the simple estimation of the net profit of state-owned enterprises in 2018, the annual capital appreciation income is expected to be about RMB390 billion. 

It helps reduce costs. It is estimated that the annual dividend received by the National Social Security Fund from state-owned assets amounts to nearly RMB79 billion, thus providing expanded space for further reduction of the social security premium rate in the future. 

It helps state-owned enterprises improve their business performance. The transfer of state-owned assets to the National Social Security Fund realizes the diversification of equity without concerns about the loss of state-owned assets, forces state-owned enterprises to strengthen their information disclosure and improve their governance structure, and propels the transformation of state-owned asset regulation to "capital management". 

It helps build a resilient and dynamic capital market. From the perspective of improving the quality of listed companies, the listing platforms of state-owned enterprises are anticipated to improve the scale of dividend, thus contributing to a number of high-dividend blue chip companies. In terms of market maturity, the transfer of state-owned assets to the National Social Security Fund will increase social security income and management scale and thus introduces an increasing number of long-term funds to the stock market. 

It helps make up the fund gap left over by history. 

Does the transfer of state-owned assets mean fund shortage of the National Social Security Fund? It does not seem to be the fact at present. From January to July this year, the National Social Security Fund earned RMB2.2 trillion and spent about RMB2 trillion, with a balance of more than RMB200 billion and a cumulative balance of about RMB5 trillion. According to the latest bill of the pension, Liu Kun, the minister of finance, pointed out that China's pension fund works stably and that the payment of the pension is assured. 

So why is "blood transfusion" necessary for the pension? Recently, Liu Kun introduced at the National Assignment Deployment Meeting of Transferring Part of State-owned Assets To the National Social Security Fund that in 1997, when China established the basic pension system for enterprise employees with the combination of overall social planning and personal accounts, it was stipulated that before the establishment of the system, enterprise retirees did not need to pay the pension premium and shall receive the basic pension according to the original payment method; for those who have participated in the work, the continuous working years before the establishment of the system shall be regarded as the payment years, and the basic pension shall be calculated and paid in combination with the actual payment years. 

"This system arrangement, on the one hand, cuts down the operating cost of enterprises and expands the capital accumulation of enterprises; on the other hand, it also forms a certain gap in the basic pension fund for enterprise employees. To make up this gap, increased taxes and pension payment rate would transfer the liabilities to the next generation and produce intergenerational unfairness." Liu Kun said that it is reasonable and practical to transfer part of state-owned assets to make up the gap in the basic pension fund resulting from the deemed payment period policy. 

In addition to historical debts, the increasing pressure of pension payment caused by aging brings concerns about the future of pension. 

ZHENG Bingwen, head of the Center for Social Security Studies, CASS, said that after a detailed study of the current pension structure, it would be clear that a large number of the huge balance each year comes from the financial transfer payment, presenting self-balance of the system. After removing the financial subsidies, the system itself cannot achieve the balance of payments. 

To cope with this problem, the Ministry of Finance proposed to promote the development of the pension system in a more fair and sustainable way through "improvement, transfer, make-up and reform". Among them, the transfer of part of state-owned assets to the National Social Security Fund has become an important link. 

A clear "schedule" is developed for the transfer. 

The social security fund from state-owned assets is not the pension people believe, but the national social security reserve fund to supplement and adjust social security expenditure such as pension insurance and make up part of the difference. 

In fact, the transfer of state-owned assets to the National Social Security Fund has been planned for a long time. In 2015, the Ministry of Finance, SASAC, the Ministry of Human Resources and Social Security and other departments set up a task force to study and demonstrate the overall plan of the transfer of state-owned assets transfer to the National Social Security Fund. 

In November 2017, the Implementation Plan for Transferring Part of State-owned Assets to the National Social Security Fund, a national plan was introduced. It clearly specified that the transfer targets include central and local state-owned and state-controlled large and medium-sized enterprises and financial institutions, and that 10% of the state-owned equity shall be transferred. 

At present, how is the transfer going? At the central level, the transfer of assets of three groups of 67 central enterprises and financial institutions has been done and a total of about RMB860.1 billion of state-owned assets has been transferred. Among them, the transfer of assets of central financial institutions for which the Ministry of Finance performs the responsibilities of investors has been basically completed. At the local level, by the end of 2018, the pilot projects in Zhejiang and Yunnan were basically completed, with a total of RMB15.8 billion and 18.5 billion of state-owned assets transferred respectively. 

As the latest breakthrough, the executive meeting of the State Council held on July 10 this year decided to comprehensively push forward the transfer of 10% of the state-owned equity of central and local state-owned and state-controlled large and medium-sized enterprises and financial institutions to the National Social Security Fund and related local receivers to enjoy the usufruct and other rights in accordance with the Implementation Plan. 

WEN Zongyu, head of the Public Assets Research Center of the Chinese Academy of Fiscal Sciences, said that this means that all state-owned enterprises will be incorporated. The equity of eligible state-owned enterprises and central enterprises that has clear ownership and has not been frozen or mortgaged by the judiciary will be transferred. Meanwhile, an increasing number of state-owned assets of local state-owned enterprises will be transferred. 

According to the Notice, it is clearly scheduled to comprehensively promote the transfer. At the central level, it shall be completed by eligible enterprises by the end of 2019 and by enterprises with real difficulties by the end of 2020. Enterprises run by central administrative institutions shall finish the transfer after the end of the centralized and unified regulatory reform. At the local level, the transfer will be basically completed by the end of 2020. 

How to manage and use the trillion yuan of funds? 

According to the final accounting data of national state-owned enterprises, by the end of 2018, the state-owned equity of national state-owned and state-owned holding enterprises (including finance) amounted to over RMB70 trillion. After the transfer of state-owned assets, the National Social Security Fund will be expanded by trillion yuan. How to manage this "huge deposit" has drawn on much attention.  

The relevant person in charge of the Ministry of Finance previously said that, according to the regulations, after the transfer is completed, the way of the main receivers to receive the income is "dividend-based, supplemented by operating income". That is to say, the income of state-owned assets mainly comes from equity dividends. In the future, the financial departments at the same level of each receiver will give an overall consideration of the expenditure needs of basic pension insurance fund and income status of state-owned assets and require payment at proper time to be used for making up the gap of the National Social Security Fund. Besides, the payment will not be put under the management of state-owned capital operation budget. 

"It's not easy to manage and employ these funds well." YANG Zhiyong, vice president of the National Academy of Economic Strategy, CASS, said that as a financial investment, the main income of receivers mainly comes from equity dividends and thus, the benefits of enterprises from which the state-owned assets will be transferred play a critical role. 

According to information, the attachment of the Notice, the Operation Measures on the Transfer of Part of State-owned Assets to the National Social Security Fund specifies that the transfer shall be done in strict accordance with the Operation Measures across the country. 

At this stage, given that the state-owned equity after transfer begin to produce income, for the purpose of value preservation and appreciation while ensuring fund security, the Operation Measures states that before the introduction of operation management measures for transfer of state-owned assets, the receiver may deposit the cash income from the transferred state-owned assets in the bank, or employ it to purchase treasury bond in the primary market, or increase capital of the transfer target. 

According to YOU Jun, vice minister of the Ministry of Human Resources and Social Security, to do well in the transfer, it is imperative for the local government to formulate and introduce the implementation plan and detailed implementation rules as soon as practical. It is essential to make scientific and reasonable transfer plan and scheme, clarify the specific requirements of key links and ensure that the transfer work has rules to follow. 

Liu Kun pointed out that next, the Ministry of Finance will carry out in-depth investigation together with competent departments, and study and formulate measures to operate and manage the transfer of state-owned assets, the specific employment measures of collected funds by the central finance administration and other supporting measures. 

Source | Worker's Daily, China Securities Journal