By Rhandell Rubio

The National Social Security Fund (NSSF), China’s national pension fund, has recently disclosed that its assets jumped by 38% to 776.5 billion yuan (US$113.7 billion) at year-end 2009. This was mainly driven by its equity investments last year which allowed them to gain 42.7 billion yuan coming on the heels of a bullish domestic stock market that soared 80% last year.

The Shanghai Composite Index (SCI) rebounded 80% in 2009 on signs that economic recovery in the region was underway as well as speculative capital inflow that flooded China with liquidity. All this came after a year to forget when the index plummeted 65% in 2008 in the wake of the subprime mortgage fuelled crisis. The NSSF lost 62.7 billion yuan in its equity investments during this year while gaining 23 billion of interest income. Overall, the pension fund lost 39.4 billion yuan, marking the first time it plunged into red territory.

The disclosure comes after a World Bank report stating that the NSSF is likely to face a 9 trillion yuan shortfall by 2075 due to the rising number of retirees in the Mainland. The central government is trying to tamper down those concerns, adding 82.6 billion yuan last year as it strove to boost its reserves to cover more retirees. In addition, China ordered in June 2009 that state-owned firms which had listed on the stock market since 2005 to transfer the equivalent of 10% of their share floats to the NSSF.

In its current set-up, the pension fund designates selected domestic mutual funds to aid in investing part of its assets in yuan-denominated A-shares. It is permitted to invest a maximum of 30% of its assets in mainland-listed A-shares while in December 2008; the NSSF said that it will be raising its allocation to overseas investments to 20% from its current ceiling of 7%.