China's enterprise annuity program, the local version of a 401(k), could be poised to shake off a reputation for disappointing growth as the 10th anniversary of the program's launch rolls around this year.
Analysts predict tax incentives announced in December could help lift the program's combined retirement assets under management from less than 600 billion RMB ($98 billion) last year to 4 trillion RMB or more by 2020 — making it the second biggest supplementary corporate pension market in Asia after Japan.
The flourishing of that retirement “pillar” could help put the country's fund management companies on firmer footing, at a moment when a stubborn bear market for large-cap domestic equities since 2009 has found many firms turning to riskier business segments — securitizing assets from their bank and securities company owners — for the bulk of their growth.
That securitization push has been a rewarding decision for fund management companies struggling to boost revenues from their core mutual fund businesses, said Xu Lirong, chief operating officer of Shanghai-based Franklin Templeton Sealand Fund Management Co., in an interview. But it has entailed taking on risks that other players in the “shadow banking” space, such as trust banks, could prove far better equipped to handle if and when markets sour, he said.
In its latest quarterly assessment of China's fund management landscape, released Feb. 27, Z-Ben Advisors, a Shanghai-based consultant on investment management business opportunities in China, said an “explosion” of assets derived from packaging products for their shareholders had helped boost the share of fund management firms' non-mutual fund assets to 30% of the total, from 21% a year before. (The non-core segment includes institutional accounts managed for the country's National Council for Social Security Fund, insurance companies and enterprise annuities.)
And that 30% total doesn't even count the assets controlled by the 61 subsidiaries set up by those firms over the past 15 months to conduct that securitization business. But some institutional help for the industry could be on the way.
Recent moves by the government to strengthen China's retirement system have left enterprise annuities “primed to finally live up to expectations” as that system's “second pillar,” complementing the country's national pension coverage and private savings, Z-Ben said.