Research On Investment Of Chinese Social Security Reserve Fund

This thesis focuses on problems of the investment of Chinese Social Security Reserve Fund. Social security reserve fund means that the reserve fund managed by the National Council for Social Security Fund of the People's Republic of China. The thesis describes the background of the social security reserve fund, analyzes the forming process, operation status and current problems in social insurance of endowment, medical, employment injury, unemployment and maternity, and provides the actuarial estimates for the financial gap and the existing amount of deficit account. The research points out that the annual income of state basic social endowment insurance has been excessive with respect to the expenditure till 2024, so as to accumulate certain fund. But the annual expenditure would excess the income since 2025 and would consume the accumulated fund. Till 2042, the fund would be used up, and in the following years, the deficit could not be covered by the fund coming from the insurance system. The net debt would reach to RMB 16.64 trillion. The fund produced by the system would encounter huge deficit without the increase of the fee collecting and the ROI of the fund.The thesis figures out the development history of the social security reserve fund. The scale of the fund has increased since 2000, when the fund was established. The fund reached to RMB 20.017 billion at the beginning of 2001 and RMB 165.986 billion at the beginning of 2005, with 730.23% increase in 5 years. Problems focus on the limits of the financial sources, low ROI, high management cost, inadequate authorized procuration with the accumulating amount of the fund. The return of the reserve fund reached to RMB 0.967 billion in 2002, at the 2.25% yield rate, which is slightly higher than bank savings interest rate;return of RMB 3.407 billion in 2003, at the 2.3% yield rate;and RMB 3.672 billion in 2004, at the 2.61% yield rate, with RMB 0.919 billion loss in the stock investment, which decreased 0.71 percentage of the ROI. How to increase the effectiveness of the social security fund investment, obviously becomes a practical problem in the social insurance. This thesis demonstrates the differences between the social security reserve fund and other social security fund by the historical comparisons, and the necessitous need for investment operation, while the detail practices in USA, Japan, Chile and Singapore was discussed as the reference to our country.This thesis takes the data of Shanghai Composite Index, national debt and bank savings in the period from 1990 to 2004 as sample, analyzes the return of differentinvestment instruments, risk discussion and return of different portfolio, the fund allocation ratio optimization of different investment instruments, and establishes the capital market line equation with the variables of Shanghai Composite Index, 3-year national debt and 1-year bank savings. The equation shows that in the sample period, the interest rate of risk free investment is 6.51%, the slope of the capital market line is 0.0348, which means every 1% increase of the standard variance (as the risk estimate) would be accompanied by 0.0348% of expected return. On the other hand, every 1% increase in the rate of return would be accompanied by 28.73% increase in standard variance. This data could be considered as the reference index of return-risk for the investment portfolio in the capital market that the social security reserve fund was involved in. The fund allocation ratio optimization (upper limit) should be: 64.6% for stock, 25.4 for national debt and 10% for bank savings. The investment ratio for stock is 24.6 percentage points higher than the limit set up by the current policy, which results from the continuous decrease in stock market since 2001 and the corresponding decrease of the system risk. The social security reserve fund has a favorable opportunity to enter the stock market. The social security reserve fund is a government-controlled fund with explicit use limit and long-term vision. Its investment strategy should be a choice among the safety, profitability and fluidity. The careful and moderate investment idea is necessary for the investment in the domestic stock market. It should choose the companies with stable return in the industries with good expectations, and the stocks with short-term investment value. It can invest to the industrial field by revenue bonds, and consider the possibilities to stipulate the laws and regulations for status, types and issue term of the revenue bond, establish the functional body for the business operation and supervision, pay attention to the feasibility analysis of the revenue bond and make sure its independent operation. The ratio of investment for international capital market should be increased with focus on the government bond, financial bond and the company bond with high credit level in the developed countries (regions).Besides, the thesis also discusses the risk control and the market environment of the social security reserve fund. The market analysis, avoidance of the system risk, careful selection of the investment products, decrease in the non-system risk, index investment, decrease in the management risk are suggested for the risk control, while veracious specification for the stock market, stability and the continuity of the market, improvement in legal system, protection for the investor's legitimate interest and improvement in corporate governance are suggested for the market environment.