China expands investment scope of 1.2 trillion yuan social security fund

BEIJING (Reuters) - China is expanding the investment scope of the country's 1.2 trillion yuan (131.33 billion pounds) social security fund to allow it to buy more local government debt, investment trusts and shares in state-owned companies, the cabinet said on Wednesday. The State Council said in an online statement that the investment limit for corporate and local government debt would be increased to 20 percent from 10 percent. The fund backs China's pension system, which must cope with a rapidly ageing population and shrinking workforce. The expanded scope will allow the fund to diversify its risk and become more stable while improving returns, the cabinet said. The move may also aid the central government in finding buyers for local government debt being converted to bonds, an attempt to bring financial risks under control. Local governments have amassed an estimated $3 trillion in debt, largely by rushing to finance infrastructure and real estate projects in efforts to stimulate economic growth. The policy move additionally allows the fund to invest up to 10 percent in trusts, compared to 5 percent previously. Trust companies, generally considered part of the shadow banking sector, also act as important conduits to the lending-starved private sector. The social security fund may also invest in certificates of deposit. (Reporting by Koh Gui Qing and Jake Spring; Editing by Alan Raybould)