Analysis on the CRISIS and Countermeasures of CHINA’s Pension Fund Investment Operation -A Case Study on the Investment Management of Pension Funds in KOREA-

Abstract

In the process of the development, establishment and improvement of industrialization, the pension system has played an important role in maintaining social stability and promoting economic development, and it became the safety valve of social and economic operation. Chinese introduced the pension system under direction of socialist ideology, the reform of the system is mainly carried out by government’s executive order, and distribute to other places. However, with the establishment of China’s market economy system, the pension system has also undergone a structural change, such as the imple-mentation of multi-level pension system, government policy and private account system, and the rural pension insurance system. South Korea made “National Welfare Pension Law” in 1973, and it was formally implemented in 1988. Promi-nent features of the pension system are as follows: the legal form of the implementation system, expand coverage on the basis of the number of workers, businesses and individuals share contribution rate of 4.5% of one’s salary. In addition, South Korea has also focused on the financial stability of pension funds, since 1988, investment funds was used, with “profitability, stability, publicity, liquidity, operational independence” as the basic invest-ment principles, pursuit transparent and effective pension fund investment. Also, the country developed annual “Investment Policy White Paper” which clearly defined objectives and long-term asset allocation strategy, invest-ment benchmarks and prevention mechanisms, recruitment agencies and other specially commissioned content, to facilitate investment management and efficiency. From 2007 to 2015, investment income rate has maintained at a high level, reaching an average 5.64 percent. Even though the People’s Republic of China(hereinafter China) has improved its pension insurance system, the country’s aging population, eroding ability to pay benefits, asymmetric regional financial burdens, and consider-able transition costs present problems in managing pension funds, preserving and increasing their valuations, and improving investment mechanisms. In fund management, in order to improve the effectiveness of fund man-agement, China needs to create investment management suited to China’s Pension Insurance System, seek for diversified investors and investment targets, establish policies and targets for pension fund investments and management and better supervision of investments as South Korea such measures will have a positive impact on the future of reform and design. This paper based on the basic content of pension fund management and the inherent requirements of the sys-tem design. It combines theoretical precedents and case analyses to apply the principles underlying pension fund management in Korea to China. It analyzes the national conditions in China and its pension operations, identifies problems, and proposes solutions.