Pension fund rule will help stabilize stock market, say experts

Just a day after the lifting of a nine-month suspension for initial public offerings (IPOs), China is making more effort to help boost investor' confidence.

The Ministry of Finance, together with the China Securities Regulatory Commission, said that State-owned firms seeking IPOs on the mainland must give a share to help plug the pension gap.

Companies that sold shares after the structure reform in 2005, and those who do so in future, must transfer State-owned shares equivalent to 10 percent of their IPOs to the National Social Security Fund (NSSF), which would extend the lock-up period by another three years.

The measure applies to 131 State-controlled enterprises, with current market capitalization of 63.9 billion yuan ($9.3 billion), said the Ministry of Finance.

Latest statistics from China Securities Journal showed this includes major State firms such as Industrial and Commercial Bank of China (ICBC), Bank of China, Sinopec Group and China Life Insurance Co.

Industry experts have said it is an important measure to stabilize the stock market in the long run.

"The policy reflects the fact regulators are paying more attention to market stabilization and the investors' interest as IPOs are resumed," said Cao Fengqi, head of the finance and securities research center at Peking University.

"The shares will be transferred to the NSSF instead of being sold, which will not have a negative impact on the secondary market. The extended lock-up period can also boost investors' confidence.

"The policy will benefit the long-term development of the capital market."

According to financial data service Wind Info, there could be about 688 billion non-tradable shares made tradable this year, about four times the number last year, while the unlocked climax will show in the second half.

State companies such as Bank of China, ICBC and China Petroleum & Chemical Corp hold 80 percent of these shares.

The expiry of the lock-up period for a large number of non-tradable shares has long been the worry for China's investors and destroyed confidence last year.

The country's benchmark index marked the end of 2008 by wrapping up its worst annual performance, falling more than 70 percent from a high of 6,124 points in October 2007.

The latest announcement came as the stock market rallied more than 50 percent this year, buoyed by optimism of an economic recovery.

"The extended lock-up period can help alleviate the panic in the climax of unlocking non-tradable shares and boost investors' confidence," said Li Daxiao, director of the research institution at Yingda Securities.

Transferring shares to the NSSF is also aimed at actively coping with shortfalls in the pension fund in the future when the proportion of the aged population peaks, the government said.

Founded in 2000, the NSSF has been seeking sustainable investment to finance the country's social security and retirement systems. By the end of last year, the NSSF had 560 billion yuan in assets.