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China’s Big Four Banks to Pilot Retirement Savings Products

Peng Qinqin, Wu Xiaomeng and Zhang Yukun wrote . . . . . . . . .

China’s major state-owned banks will launch a pilot program for retirement savings products in several regions soon, sources with knowledge of the matter told Caixin, in what would be the country’s latest effort to mitigate a looming pensions crisis.

The China Banking and Insurance Regulatory Commission will let the so-called big four banks — Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank — offer the first batch of products, according to the sources.

China hopes to shore up its state-dominated pension system, which could run out of funds in the near future. Policymaker strategy involves developing a private pension system in which people invest in various products of their choice, including deposits, mutual funds, commercial pension insurance plans and wealth management products managed by banks and their subsidiaries.

Under the pilot program, each of the participating banks will accept no more than 10 billion yuan ($1.5 billion) for investment in retirement savings products, which will likely be similar to long-term deposit products, with terms ranging from five to 10 years, the sources said. The banks may be able to set interest rates higher than the upper limits on fixed deposits allowed by the central bank-governed self-discipline mechanism for setting market interest rates.

To attract customers, the interest rates of retirement savings products can’t be too low, said a person at a major bank. Another banking source said the regulator may encourage the banks to set interest rates comparable to 10-year government bond yields.

The CBIRC didn’t respond to a Caixin request for comment as of press time.

A CBIRC announcement released this week said that retirement savings products should fulfill customers’ long-term retirement needs and have certain requirements on the withdrawal of funds.

“A large proportion of Chinese residents save their money in banks, but most of the deposits are short-term ones of less than five years. Options for long-term investments are limited, and many flow to the real estate market,” said a source with ties to regulators.

Retirement savings will provide not only a new long-term investment option, but also an important source of long-term funds for the capital market, the source said.

Source : Asia Nikkei

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