Institutional Root Cause of the Irregularity of Social Security Funds in China

This paper analyzes institutional defects in the Chinese social security system, based on irregularities in social security funds revealed in the Audit Report by the China National Audit Offce. The author divides the irregularities into five categories according to the nature of fimd use. The results show that the institutional root cause of the irregularities lies in the unreasonable design and operation of the social security system, which currently faces management and institutional risks, This paper argues that simple rhetoric about strengthening regulation and supervision cannot help to reduce illegal practices, or to realize risk control. The only solution is to reform the social security system. Specifically, the Chinese Government should regulate the administrative cost of the social security system, and the behavior of its agencies, through legislation, reform the investment regime to increase rate of return of pension assets, and adjust and reshape the existing social security system, so as to elevate its pooling level.

Seminar on“Supervision and Legislation of Social Security Funds in China”, April 2007

Since 2001, China has witnessed several scandals involving embezzlement and inappropriate use of social security funds. A scare occurring in Shanghai in 2006 and a report by the China National Audit Office on social security funds have brought the issue of supervision and legislation of social security funds into the spotlight, attracting wide attention from the public.

Assessment for Social Security Pilot in Jilin and Hei Longjiang of China

The present paper reviews the social security pilot in Jilin and Hei Longjiang that was carried out between 2004 and 2005. The pilot in the two provinces has basically achieved its main objectives, but there are still some unsolved problems, the most severe being lack of effective investment of the funds accumulated by individual accounts. During periods of high economic growth and high growth in average wages, this problem might undermine the partially-funded security system. To this end, the paper makes some suggestions, one of which is to introduce the notional defined contribution system.

Does the social security fund help non-financial enterprises to transform from the virtual to the real?

At its 19th National Congress,the Communist Party of China vowed to“strengthen the financial sector’s ability to serve the real economy.”However,many studies provide evidence of the opposite trend,a problematic“transition from the real to the virtual,”among Chinese enterprises.Meanwhile,the investment efficiency of China’s Social Security Fund(SSF),a public fund,attracts much attention.In this context,we use A-share listed companies in China from2009 to 2018 to study the relationship between holding by the SSF and enterprise financialization.We find that SSF holding significantly inhibits financialization and that this effect is non-linear.Mechanism analysis indicates that SSF holding suppresses enterprises’financialization mainly by improving their governance.Moreover,SSF holding more strongly inhibits small-scale(vs.large-scale),state-owned(vs.non-state-owned),and non-eastern(vs.eastern)enterprises in China.Furthermore,SSF holding can alleviate corporate value impairment caused by financialization.The conclusions enrich theoretical research and provide empirical evidence that may help regulatory authorities to guide investment by enterprises and prevent financial risks.

The impact of the Social Security Fund on auditor litigation risk

In this study,we examine the effect of the Social Security Fund on auditor litigation risk.Using audit fees as a proxy for auditor perceptions of litigation risk,we find that the Social Security Fund significantly reduces auditor litigation risk.Furthermore,we show that the Social Security Fund influences auditor litigation risk through reducing both the audit risk and the business risk of public companies.In addition,the impact of the Social Security Fund for reducing auditor litigation risk is more obvious in the group of firms with low levels of internal governance,which indicates that the Social Security Fund plays an important governance role as a high-quality institutional investor.In summary,we verify that the Social Security Fund,when acting as an institutional investor,plays an important role in corporate governance,and that it helps to reduce auditor litigation risk.Our results provide empirical support for expanding the governance role of the Social Security Fund as an institutional investor in China’s A-share market.