The Study On China's Social Security Fund Investment And Risk

China's social security system has been undergoing a great reform since the year of 1993. After years of development, great progress has been made in China's social security system. A socialist market economic system has been initially established in line with the social security system of Chinese characteristics, which is the economic basis of the social security fund to achieve rapid, large-scale accumulation. However, the personal accounts suffer from serious "empty accounts", because China's social security fund is still young, and the system is still not mature. The reformation and reconstruction of state-owned enterprises need the social security system and the social security fund as a strong backing; the tremendous hidden historical debt during the transition period needs to be compensated with the social security fund. At the same time, the increasing aging population in China will accelerate the process of social security for old age. Along with the increasingly close relations between the social security system and the macro-economic system, the Social Security Fund is also very likely to face the risk of inflation resulting in the erosion of payments crises. The importance of maintaining and increasing the value has been raised to an unprecedented height by the issues mentioned above. According to a mature international experience, to invest the social security fund in the capital market and carry out the market-oriented management is the only practical choice to realize the value maintaining and increasing. And large-scale social security funds to invest in the capital market as a whole will not only have a profound impact on the socio-economic, but also the social security fund under various risk. Therefore, it is of great importance to make an effective investment and control risks.First, we need theoretically make clear various understanding and comprehension, which is explained by either the economical dictionary or the economists. Therefore, based on the comparison between financing, performing and managing, we learned the real mean of social security funds investment. Meanwhile, we can use the domestic and foreign research for reference, especially in terms of investment manner, investment combination, risk diversification and management. Common conclusions are achieved that the Social Security Fund has to be marketized in order to maintain and increase its value; that investment diversification has to be carried out; that both the public and the private sections can be the principal parts of the marketization of social security fund; and that it is a trend to carry out investment trust. In practice, we are still in research of the investment outlets, investment manners, and investment assets distribution; we are still in attempt of the risk control and financial innovation; and we are still in argument about who (governmental of financial institution) should be responsible for the investment management (in a centralized way or a spreading way), about direct investment or investment trust.Second, we need to recognize and judge the social security fund investment risk. We learn from many cases that there are various risks such as market, management and trust agency. Consequently, the risk management is of extreme importance, which concerns the stability of the social security fund in a long run, the realization of its object, the success of the social security system and the stability of the whole society. In a word it concerns the interest of everybody. We classify and recognize the social security fund investment risk, which is based on personal account; and we introduce the traditional risk judgment measure and the popular VaR to social security fund risk judgment. The social security fund investment combination does better in risk control. Third, we need to focus on the social security fund investment asset allocation, which is the most important part. It is showed that the investment allocation varies to the different nature and status of the fund; that there is something common with the investment object; that minimum investment ratio is set to bank account and public debt in developing countries; that the proportion in stock market depends on the maturity of the capital market; and that the investment diversification is the essence of modern assets allocation.According to foreign experience and in terms of the investment principle and the national situation of our country, we need to choose the type of the investment assets. We need to maintain traditional investment tool as well as to develop new investment outlets. Modern assets allocation theory is used to establish and analyze assets allocation model. It is put forward that bank account must take up a certain proportion to control risks effectively, but not too much, otherwise the pressure of increasing value will be increased too. Profitability upswings when the proportion of corporate bond and the entire risk of combination increase.This shows that more funds should be invested in corporate bonds, when the social security fund investors are constructing the investment portfolio. Now, it is stipulated in "the National Social Security Fund Investment Management Interim Procedures" that the ratio of investment in corporate bonds may not be more than 10%. This ratio significantly lower ceiling, and in this constraint people can not take full advantage of the improved investment portfolio yield effects, which Weakens the combination of the effect. Due to this it is suggested the proportion of investment in corporate bonds should be expanded to 20 percent or even higher. This is in line with requirement "expansion of the scale of corporate bonds issued to develop corporate bonds," put forward by the Party Central Committee and the State Council. Bonds should be a better social security fund investment products, but in order to obtain higher returns to the extent possible, people should make use of debt-related enterprises to avoid risks, and to maximize the proportion of their investment in corporate bonds. Shares can, to a certain extent, rapidly improve the portfolio yield, but the proportion it holds should not be too big. Due to the current high-risk stock market, the proportion of the investment is proposed to be within 10%, otherwise, the effect of portfolio risk diversification will be greatly weakened. That is to say, 40 per cent of the equity investment ceiling provided in "the National Social Security Fund Investment Management Interim Measures" seems to be too high; the ceiling should be 20 percent. Due to the short history of China's capital market as well as the lack of relevant statistical data, there may be a certain gap between conclusions and the actual situation. In addition, when China is in a rapid socio-economic development and capital market is experiencing extremely profound change, our conclusions based on historical data are relative and temporary, therefore, in our view, the types of assets restrictions on the proportion of investment in the future development of the market should change with the timely adjustment. Nevertheless, we still believe that this conclusion is of practical significance, because we may not need social security fund specific asset allocation ratio; what we need is a relatively large proportion of the scope for reference.Previously we have studied social security fund asset allocation about how to fully spread the risks and gain ideal investment returns in the major investment. In fact, the social security fund's investment management and supervision are equally important. The social security fund investment risk and the effectiveness vary to different Management and supervisory approach. This is what is conveyed in the sixth chapter also the final part of this paper. This chapter gives comparison between the successful social security fund investment management models in a few countries to study China's social security fund investment management model on the basis of the conclusion. We adopt two different management models in accordance with actual conditions in China and the different nature of the social security fund. The first level—to pay now which is the nature of co-coordinating social security fund in a unified manner and centralized management model; the second level—appropriate centralized management model can be considered in the individual accounts with the nature of accumulation funds and supplementing the social security fund. Then we should make clear the privilege and obligation of the principal, investment manager and trustee, from the perspective of the commission– acting.We are establishing socialist market economic system now, the capital market is underdeveloped, and the social security system is not perfect. Based on these facts and the requirement of future development of a multi-level social security fund, we need not only the social security fund management effective management agencies, but also the governmental representatives of the majority of workers to strengthen the social security fund supervision and the establishment of a sound investment conditions regulatory system. It must be noted that: it is not the stricter the supervision of social security funds is, the more complete and effective regulatory effect will be. It is necessary to nail down the governmental duty clearly in the supervision of social security funds. And it is extremely important to establish sound social security fund investment supervision and control system, and to select appropriate regulatory approach. It is reasonable to carry out different supervision modes in China according to different status and nature of the three pillars of the social security fund. In addition, in order to establish a sound social security fund investment supervision and control system, we need not only emphasize the construction of their own monitoring system, but also promote the coordination and cooperation between social security agencies and other related departments, and gradually explore suitable social security fund investment supervision system which can be applied to the actual situation in China, in order to ensure the long-term stable operation of the social security funds and the realization of social security.