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China Pension Fund's Returns Fall on Stock Market Decline

Investment returns at China’s national pension fund fell 77 percent last year after the country’s stock market tumbled as economic growth slowed and the government tightened lending to curb inflation.

Investment gains were 7.4 billion yuan ($1.2 billion), or 0.85 percent, the National Council for Social Security Fund said in a statement on its website today without providing a growth rate. That compares with the 32.1 billion yuan, or 4.22 percent, for 2010, the fund reported a year ago.

Chairman Dai Xianglong’s fund, set up in August 2000 to plug a funding gap in China’s pension system, joined China Life Insurance Co. in suffering from a 22 percent slump last year in the benchmark Shanghai Composite Index. Stock holdings returned an annualized 18.6 percent since the fund started such investments in June 2003, more than 10 percentage points higher than the yield for the entire fund, according to the statement.

Stock investments, “as long as bought at reasonable valuation levels and managed as long term investments, over the long run, can still bring higher returns than fixed-income products,” the fund said. The fund “will draw experience and lessons from the past and stick to a very prudent stance on stock investments.”

Realized investment gains totaled 43.1 billion yuan last year, representing a 5.9 percent yield, while fair-value losses stood at 35.7 billion yuan, according to the statement. The government added 48.3 billion yuan to the fund last year, bringing the total assets under management to 869 billion yuan.

Equities accounted for 32 percent of total assets as of Dec. 31, compared with an average proportion of 19 percent historically, the fund said. Fixed-income products made up 51 percent, while another 16 percent of its portfolio was held in industrial investments.

China Life, the nation’s biggest life insurer, said on March 6 that net income for 2011 may drop 40 percent to 50 percent due to lower investment yields and impairment losses stemming from swings in the capital markets.

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