China state media says pension funds investment scheme raises graft risk

BEIJING (Reuters) - A Chinese state-run paper has warned against potential pitfalls from Beijing's moves to invest a portion of pension funds in capital markets, including the prospect that it could lead to graft and mismanagement.

The influential state-run newspaper Global Times said late on Tuesday in its English-language edition that announcement from the Ministry of Human Resources and Social Security's (MOHRSS) decision to proceed with the plan has triggered concerns over the management of the pension funds.

"Managing the pension could be a problem since the funds are currently in the hands of local governments," Peng Xizhe, dean of the School of Social Development and Public Policy at Fudan University was quoted as saying.

Mismanagement of public funds is known to be rampant.

More than one million have been punished for corruption between 2013 and this September, as president Xi Jinping pushes ahead with a nation-wide anti-graft campaign, according to party statistics, though many only get administrative punishments.

China announced last August that it will for the first time allow pension funds to be invested in stocks and other assets. Previously, the funds could only be invested in lower-yielding bank deposits and treasuries.

Some provinces have already drafted plans including investment quotas for their investments, the Ministry of Human Resources and Social Security (MOHRSS) told reporters in Beijing on Tuesday, without identifying the provinces or giving more details.

The first batch of provincial governments will be able to sign a contract with the National Council for Social Security Fund to invest within this year, the ministry said.

Analysts have long warned about China's state pension having a severe funding shortage. Some estimate the cash shortfall could rise to nearly $11 trillion in the next 20 years.

The Global Times said China's pension fund had a surplus of more than 3 trillion yuan ($443 billion) at the end of 2015, citing information from the Research Institute for Fiscal Science under the Finance Ministry.

(Reporting by Yawen Chen and Ben Blanchard; Editing by Ryan Woo and Shri Navaratnam)

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