An empirical approach on regulating China’s pension investment

Abstract

A prerequisite for preserving and increasing the value of pension funds is to make an appropriate investment with them; for this purpose most countries have issued regulation to guide the pension investment. After conducting an empirical analysis of different investment portfolios, e.g. Bank deposit, Treasury bond, and Equity in China, this paper reaches the following conclusions. Observing the strict limitation on quantity, the public equity ratio in portfolios of pension funds should be controlled below 20 %. To alleviate the “Home Bias” in investment, as well as to avoid the systematic risks intrinsic of the investing within a single country as China, some part of pension funds investment should be allowed to be invested into overseas markets. The constraints on public equity investment may be liberalized and the prudential person rule of pension investment in Common Law could be imported into pension legislation amendments when the Chinese stock market and legal system is more developed and going mature.