China Pension Market Value Chain Research

The dissertation defined the"Pension Market"as:The whole management andoperation system about the full funded pension which need to be managed forreturn growth.China's pension market is just on its infant stage.Meanwhile,the CorporateAnnuity (CA hereafter),which takes the market-oriented mechanism,is theprinciple part of pension market.Since it formally launched in 2004,CA hasmaking a lot of progress.However,the development of CA is not as good aswhat expected originally.Many problems exist,such as:service providersprefer much on big SOEs while neglect the needs from those private small andmedium sized companies;commercialized operation rules are not set up yet;value chain in pension market is not yet founded;the generation of value andits transfer system are not well organized;there are still no sound cost-benefitbench mark and standards for management fees,etc.Cultivating China's valuechain in pension market,leading market players doing good for pensionbeneficiaries,making pension market being stronger and healthier are maintargets of China's pension system reform.Therefore,a deep research on valuechain of China's pension market is significant in both theoretical and practicalsides.The dissertation starts from and finally ends on the benefits of pensioners.Withthe totally new perspective of value chain,the essay made a deep research onthe micro operating mechanism of China's pension market.The main conclusions and findings are as follows:1.Analyze the value chain system of China's pension market,including theinternal value chain of each market player,the external value chain likevertical and horizontal ones,incorporation among different players and theirvalue chains.The essay demonstrated that the vertical incorporation ofvalue chain could increase the service supply and decrease the pricesimultaneously.The essay thinks that China should encourage the verticalincorporation of value chain in pension market.2.Analyze business relations among different players in pension market byusing principle-agent theory and game theory.The essay respectivelyconducted detailed analysis on the multiple layers of principle-agent risksby constructing a series of game models,including anti adverse selectionmodel,anti morality risk model,multi-player game model,and thecomparison model between the"3+1"and"2 2 modes.The essay reached the functional relations and their corresponding conclusions:China'sCorporate Annuity Fund Management can,through the establishment ofsome efficient stimulus contract,pilots the deputy to take some actionsbenefiting the principles and reach the win-win target.This text finds thatthe current loss compensation policy,which only takes a proportion ofmanagement fee to make up potential losses,cannot reflect thecorrespondence of benefits and risks,rights and obligations.The pensionfund management institutions should also take the responsibility of loss forpenalty as well,especially when he cannot reach the guaranteed retum rateor the bench mark of overall industry.Besides,the essay thinks that thecurrent fix charge for record keeping services may results in someefficiency losses and need to be reformed also.Furthermore,the supervisionfrom government could find a reasonable point which is neither overmuchnor scarce.Government can reduce the rent-seeking probability amongmarket players by enhancing penalty and its management efficiency.3.The essay conducted an empirical study on pension management ofAustralia and Hong Kong,analyzed the pension investment portfolios,management costs,administration fees,return rates,and risk levels etc.,anddrew out the overall cost-benefit relations in these two countries.The essaydesigned a new index return-cost ratio to measure operating efficiencyof a pension service provider,constructed an analytical framework whichcan be a comparable one for China's reality.The essay finds out,1) China'scurrent totally 1.6% of management fee is lower than a reasonable one,1.74% could be a bench mark for current pension fund scale;2) theadministrative pricing is not good for China's pension market developmentand also be a barrier against the economies of scale in future.3) the retumrate of China's pension fund in past years was not good enough,Chinacould treat 3.32 as a reference of the retum-cost ratio under China's currentsituation.4.Projected China's urban population scale till to 2030 by using demographicmethod.Based on the projection results,the essay made a forecast ofChina's pension market scale by adopting actuarial methods,which resultsamended the over-optimistic forecast before.The essay applied the researchresults about Australia and Hong Kong to China's pension market scaleprojection and drew out its development trend in future.The findings are,the market scale of CA could be in range of 12 trillion to 33 trillion RMB in2030 and market-oriented supervision methods will help the track of costgoing down while benefit going up due to the effect of economies of scale.5.Prudential regulatory approach is better than the strict approval one nomatter theoretically or practically.However,since the reality of unperfectedlaw system,fluctuating capital market and weak intermediaries etc.,theessay don't think China is suitable for the prudential regulatory approachfor its pension market now.It could be a wisdom choice if China could tryto cultivate the needed market environment when it still taks the strict one. The bottom line is,try to transfer to the prudential supervision mode whilekeep the pension funds security.Finally,the essay provided some policy advises on building up a healthy valuechain of China's pension market in aspects of system,market operation andgovernment supervision.