China’s Pension System Reform and Capital Market Development,” International Conference on China and

The paper analyzes the interaction between the pension system and capital market development in general, and the case of China in particular. A funded pension system is most likely to boost the capital market, but in the absence of supportive financial infrastructure and effective financial regulation, A funded system will not be successful. China’s determination to establish a partial funded system is a first step in the right direction, but without the separation of individual accounts from the social pooling and their replenishment, the workout of the implicit pension debt, and improvements in pension fund management and regulation, the pension system will not be sustainable. As to capital market development, the key is to contract out pension fund management to professional asset managers, to support China’s major financial players, and to speed up the financial opening. At this point, investment of pension assets in mutual funds and a pilot program of private-placed, open-end funds can be initiated.