Will China become less risky for pension funds to invest? China expert George Magnus answers

Will China become a less-risky place for pension funds to park their assets? And what is the situation with China's own retirement system?

These were the unanswered questions asked of George Magnus, economist and research associate at the China Centre of Oxford University, at the Pensions & Investments WorldPensionSummit, held in The Hague, Netherlands last month.

Magnus discussed China, its demographics and how now is not the time to start building up an exposure, despite low allocations across investment portfolios.

Delegates had the chance to ask questions at the summit, but since some went unanswered, Magnus agreed to share his thoughts. Questions and answers have been edited for style, clarity and conciseness.

A: As we have already seen a bit, the rhetoric of XJP (Xi Jinping) and of senior leaders has softened as far as domestic regulations and laws applied to private and foreign firms are concerned, and China seems to be accommodating the new approach by the Biden administration with regard to engagement and communication. However, I don't think anything fundamental is really changing, or that the investment and geopolitical risk faced by investors is now sustainably lower. Foreign money in China is still leaving as of late October, and while we should expect flows to be noisy, I think, the derisking, in which both sides are engaged, is likely to persist for a long time.

A: I don't have hard information on the funding status of China's pension liabilities but the IMF, I think, has estimated the NPV (net present value) of the first two pillars (the third is small and DC), based on current law, to be over 100% of GDP. Separately, there have been reports in Chinese online platforms like Caixin on the negative funding status of the main pension scheme in the next several years. I don't think there is a big risk of social, as in street, unrest arising from weak or inadequate pensions. But as a contributor to the malaise that people are talking about in Chinese society and in the economy, it probably does have some role.