After the country halted the selling of State shares in domestically listed firms late last month, the payment ability of the social security fund has become a focus of attention.

The fund is short of capital, but there are ample ways to channel in the necessary money to balance its books, said an article in Outlook Weekly magazine.

But sale of State-owned shares had been seen for a long time as a strategic step to inject money into the short-funded social security kitty.

The Ministry of Finance and the China Securities Regulatory Commission (CSRC) said the fund can maintain balance over the next few years through allocations from government coffers and income from companies listed in overseas stock markets.

This contradicts what the government said last year when the selling plan was initially put forward, the Outlook article said.

Back then the Ministry of Labour and Social Security (MOLSS) estimated the shortage of funds in 2001 at 40 billion yuan (US$4.8 billion). But the Boshi Fund Management Co, which handles the social security fund, said the figure was 455.2 billion yuan (US$54.8 billion).

According to the White Paper on China's Economy 2002, authored by researchers from the Chinese Academy of Social Sciences, the shortage could reach 10 trillion yuan (US$1.2 trillion) in the next 30 years, with an average yearly gap of more than 300 billion yuan (US$36 billion).

Within a short six months, the figures given by the different departments have changed vastly. What is the truth?

Since 1995 when the new social security and pension system was launched, the social security department tried to devise a system that transfers part of the responsibility to business to ensure the progress of social security reform, the Outlook article said.

But enterprises do not have the capacity to shoulder the burden. To ensure payment of retirees' pensions, businesses have to use the capital in the pension accounts of the current employees.

In 1998, the State pension fund could not maintain balance in 21 provinces. In 1999, the number increased to 25.Thus comes the claim by some researchers that there has been a persistent shortfall in the social security fund, said the Outlook article.

Researchers from the Development Research Centre under the State Council said that the gap will not constitute a serious challenge to the government, since it only needs to be bridged over a comfortably long 30-year period, the article said.

Most important to the government is the yearly payment. The number of people to receive pension payments in the next few years should not exceed 40 million, which means the government needs about 300 billion yuan (US$36 billion). This is an affordable burden when compared with the current yearly financial revenue of 1 trillion yuan (US$120 billion), the Outlook article said. In addition, the corporate accumulation for the pension fund could be about 100 billion yuan (US$12 billion), which helps narrow the gap.

Those researchers conclude that the source of the "empty accounts" issue is misunderstanding between the policy-making departments and the implementing departments.

Nonetheless, the problem of the social security fund shortage cannot be ignored.

The current social security fund is composed of four parts: the "socially pooled" capital from government allocation; the personal accounts; the corporate reservation for the accounts; and the national social security guarantee fund.

The fund accumulation pace of the first three parts is satisfactory, the article said.

The fourth part, which is earmarked for emergency use in about the year 2030 when the now-young population enters "old-age," accumulated about 80 billion yuan (US$9.6 billion) by 2001.

To add to the fund, investment in the capital market will be a choice, the article said.

Officials from the MOLSS have implied that larger moves will be taken to invest the social security fund monies in the capital market. At least 40 billion yuan (US$4.8 billion) will be pooled for social security from the A-share market.

According to reports co-drafted by MOLSS and the Boshi Fund Management Co, the social security fund administrators should take more aggressive steps to invest the fund in treasury bonds and bank deposits and permit 10-15 per cent of the fund to be invested in the stock and investment fund markets.

New channels should be tapped, such as issuing social security treasury bonds and launching a social security lottery, the Outlook article suggested.

In the next two years, the fund should invest 10 per cent of its capital in overseas markets through experienced international fund management companies, the article added.

Managers from the fund said methods have been established to ensure the income.

These methods include collecting capital from the selling of State shares, overseas allocations from the government and other capital pooling approved by the State Council.

In addition, 80 per cent of the income from the 2001 lottery will be injected into the fund.

According to the article, the authorities believe that investment in bank deposits and treasury bonds should account for at least 50 per cent of all the investment by the fund. The proportion of investment in corporate bonds and financial bonds should not exceed 10 per cent and that in stock and stock investment funds should not exceed 40 per cent.

But there are some problems in the management of the fund, it pointed out.

The most urgent task is to establish a sound management regulation framework.

The most serious problem with social security fund management is loose supervision.