Problems And Countermeasures Of Chinese Pension Fund’s Investment In Infrastructure Construction

The debt crisis, the financial cliff of the U.S, the severe impact the global crisis had on China’s economy, and the immature and incomplete domestic capital market have posed threat to the security of China’s pension fund. With the worsening of the aging issue, China is now faced with the contradiction between inadequate pension fund and the increasing aging population. Over-tight investment rules on pension fund, intangible debt and imbalanced payments of pension fund, the "empty account" operation of personal account, and risks management of pension fund investment are becoming increasingly tough. For a long time in the past, China’s pension fund can only be deposited in the banks or purchase national debt. The narrow investment channels and low rate of investment returns are neither conducive to maintaining and increasing the value of pension funds, nor the long-term development for capital market. Based on all reasons above, I chose the topic of "Problems and countermeasures of Chinese pension fund’s investment in infrastructure construction---based on experiences and revelations from Latin American emerging market countries". In purpose of drawing lessons from other countries’experiences, and to analyze the feasibility of China’s pension fund’s investment in infrastructure construction. Through thorough analysis of diverse pressures and risks China now confronted and learn from related experiences of Latin American countries to provide some policy advices to make China’s pension fund more secure and beneficial and also maintain and increase its value.This paper is set in the present condition and investment demand of China’s pension fund system and the interaction between domestic capital market and pension fund; and it takes analysis based on performance of pension fund’s investment in infrastructure construction from Latin American emerging market countries as lessons. As a result, it analyzed the necessity and feasibility of investment in infrastructure sector for pension fund, and discussed systematic and theoretical support needed after it expands investment channels to infrastructure area.There are two research methods used in this paper. First, it is literature analysis, that is, by retrieving and collecting research literature about pension fund’s investment in infrastructure construction to precisely grasp the pension fund investment directions and analyze frontier theories of feasibility of investing in infrastructure area; Second, I adopt data analysis. Combining statistics consensus from Latin American emerging market countries and China’s pension fund’s investment in infrastructure construction area with associations between capital market and state policies to find out difficulties that stuck pension fund’s investment in infrastructure construction, and drawing on other countries’ successful experiences, we can eventually work out a suitable way for pension fund investment through exploration and research.The paper is divided into six chapters. Chapter one mainly introduces research’s background, significance, innovation, and inadequacy. The second and third chapters are based on systematic analysis of the status and investment demand of China’s pension fund. Assessments of importance and necessity of pension fund’s investment in infrastructure construction are followed by emphasized analysis of influences which the current capital market’s development level has on pension fund, and mutually promote effect after pension fund intervene in infrastructure sector. The forth chapter analyzed the performance of pension fund’s investment in infrastructure construction in Latin American emerging countries in order to get experiences and revelations useful for China’s pension fund. Columbia, Mexico and Peru are Latin American emerging market countries. Their pension funds have long been invested in infrastructure construction with gains and losses, which is valuable for China to learn from as a counterpart of developing country. This chapter mainly introduces the financing mode which the three countries have given concessions, that is, BOT, TOT, PPPS. These three modes reveal benefits conditions of pension fund through intuitive forms such as data and charts. The fifth and sixth chapters, based on the forth chapter, put forward related policy suggestions which suit China’s pension fund’s investment in infrastructure construction through specific analysis of risks and obstacles China’s pension fund investment now confronted with (immature capital market, unsteady investment returns, and over-tight investment rules on infrastructure construction), and associate with relevant experiences in pension fund’s investment in infrastructure construction from Latin American emerging market countries. For instance, improving external environment for pension fund investment management:building up a supervision mechanism that is market-oriented; and setting up infrastructure industry funds.What’s new about this paper are mainly as follows:(1) The chosen topic is forward-looking for it is in accordance with the latest development tendency of present pension fund management. This paper had an in-depth analysis according to the current system and investment demand of China’s pension fund and the degree of match between pension fund and infrastructure construction financing.(2) Making comparison with Latin American emerging market countries on performance of pension fund’s participation in infrastructure construction, thus we can understand the pros and cons of pension fund’s investment in infrastructure construction. On grounds of averting risks, we also absorb strengths from its operation mode, which has great reference function for China’s pension fund’s intervention in infrastructure area.(3) This paper provides a new train of thought of policy advises and supervision ways over pension fund’s investment in infrastructure construction. First, apart from improving relevant laws and regulations in the system, we should see the scale and investment potential of enterprise annuity fund as complementary pension fund. Second, due to China’s lack of experiences in pension fund’s investment in infrastructure construction, monopoly industries are supposed to operate under the oversight and supervision under the government. Moreover, provinces and municipals manage the pension funds respectively, which lead to the dispersion of funds. Based on this point, it is suggested that funds should be firstly centralized and then put into investment. It can not only increase the returns of investment, but also improve the management efficiency of funds.