China will issue two laws to regulate the management of its social security funds in the wake of a number of scandals in the sector, according to officials from the Ministry of Labour and Social Security.

Special coverage: Pension Fund In Spotlight Related Readings:  PBoC chief urges deal with pension system  Chen dismissed for pension scandal  Shanghai F1 chief in graft probe  First arrest in Shanghai fund scandal  Tycoon arrested for pension scandal

Along with the Social Security Law, which is currently being drafted, the Social Security Fund Management Regulation will also be put on the legislative agenda, according to the officials.

Although the two laws are expected to be released concurrently, their exact date of issue has yet to be set.

Ministry officials said that the absence of such legislation was the major reason for the misappropriation of social security funds.

Chen Lian, director of the ministry's supervision bureau, said that only the Labour Law currently regulates social security funds to any extent.

"Some other relevant regulations only remain at ministry level, and are not strong enough to regulate all aspects of the management of the funds," said Chen.

A National Audit Office report published on Thursday highlighted major problems in the running of social security funds, such as lax supervision, poor management and embezzlement.

According to the report, around 7.1 billion yuan (US$900 million) of the country's 2 trillion yuan social security funds had been misappropriated.

The country's top auditing body said that misappropriated funds would be traced and recovered, and called for the management of the funds to be more transparent.

Consisting of pension, unemployment, health, and occupational injury insurance, the annual income of the social security fund increased 20 per cent year-on-year to 696 billion yuan (US$87) in 2005.

"Any way of managing those funds to add to their value should be cautious and based on the premise that they secure," said Tian Chengping, minister of labour and social security.

In another move to protect the funds, the ministry has called on all provinces, municipalities and autonomous regions to establish social security fund supervision commissions.

In addition to beefed-up supervision of social security funds, China also plans to extend its social assistance system to cover all urban and rural residents by 2010.

The new system will mainly consist of financial subsidies to the nation's poorest families and childless elderly people in rural areas, as well as temporary assistance to areas hit by disasters or outbreaks of disease, Vice-Premier Hui Liangyu told the 12th National Civil Affairs Conference on Thursday in Beijing.

Investment in social assistance funds from both central and local treasuries reached 30 billion yuan (US$3.75 billion) in 2005, covering about 100 million needy people, according to statistics from Ministry of Civil Affairs.