China's hidden pension debt could exceed CNY20tn: Expert

China's pension reserves could only fund the system for a year and a half at the end of 2012.

China's creaking pension fund system could have a hidden debt of over 20 trillion yuan, an expert with the country's leading think tank said.

Zheng Bingwen, director of social security center with the Chinese Academy of Social Sciences, drew the conclusion based on his assumption that China's pension reserves could only fund the system for a year and a half at the end of 2012.

The decades-long "one-child" policy has left China with a rapidly aging population, a severe challenge for the developing country, Zheng said in an interview with the China Securities Journal.

Reforms of the pension system will still be on 2014 agenda, he said, and the "breakthrough" will involve an overhaul of the current pension scheme in the state sector.

There have long been calls for the merging of the separate and private employee pension schemes, under which, payments after retirement range widely between the two sectors and in different regions, a public source of ire for inequality.

Such reforms can add nearly 400 billion yuan to the annual pension fund, which will become a fresh source for China's capital market, according to Zheng.

Zheng said inefficient operation had actually devalued the pension funds, which are already in shortage. Unlike most countries, China parks the majority of its pension funds in banks, where annual returns are typically less than 2 percent, compared with an annual inflation of 2.47 per cent in the past 11 years.

With such a huge hidden debt, Zheng said authorities should view the issue carefully, after all a large chunk of them are currently subsidized by the government.

He suggested the government conduct an internal review of the hidden pension debt and funding shortages.

By 2050, more than 30 percent of Chinese population will be over 60, according to latest data from the United Nation. With an increasingly aging population, Zheng estimated that China needs to double the scale of its pension fund by 2021.

Source Caijing