China to launch private pension funds

China has launched its first private pension program for workers in the country, opening the door to foreign insurers and asset managers, Reuters reported on Thursday.

Under the new scheme, workers can contribute up to 12,000 yuan, or about US$1,860, annually to their pension fund, Reuters reported on Thursday, citing a government policy document. The program will have year-long trials in select cities before going nationwide, Reuters reported. Previously, workers and their employers only had fixed contributions under public pension schemes, Reuters reported.

This could create ripe choices for asset and wealth management in China.

Foreign managers can target a new market

Foreign insurers and asset managers are expected to accelerate their expansion on the continent following the change, Reuters reported, noting that under the new scheme accounts can be invested in wealth management products.

Economists have long pointed out that China’s propensity to save rather than consume creates headwinds for the economy by dampening consumption. Indeed, gross national savings as a percentage of gross domestic product (GDP) has remained around 44% to 45% since 2016, with a drop to 43.8% in 2019, the year the Covid pandemic began. -19, according to data from the International Monetary Fund (IMF).

Household savings in China rose by 5.41 trillion yuan in January, an increase four times that of January 2021, the Wall Street Journal reported in March, citing official data. It came as retail sales stagnated, the report said.

Strong household savings

Chinese consumers may be receptive to another savings vehicle as consumer sentiment appears to be muted. The country has faced a series of local lockdowns to control the spread of the Covid-19 virus. In Shanghai, authorities launched a new round of citywide testing on Friday and warned the city’s 25 million residents that the already three-week-long lockdown would only be eased in batches as the transmission of the virus would end, reported “Reuters”.

In a first-quarter survey released by the People’s Bank of China (PBOC) in March, 54.7% of responding consumers said they favored more savings deposits, up 2.9 percentage points. percentage compared to the fourth quarter of last year. About 23.7% of respondents in the March quarter said they preferred to consume more, down 1 percentage point from the previous quarter. The drop in interest in consumption is particularly striking because the first quarter included the Lunar New Year holiday, a period of generally high consumption.