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6b yuan public fund illegally invested in stocks

By Shangguan Zhoudong (Chinadaily.com.cn)
Updated: 2007-06-20 15:25

More than 6 billion yuan (US$786.37 million) in public funds was illegally invested in the stock market from 2003 to 2006 in Shanghai, reports the Shanghai Morning Post, citing statistics from the Shanghai Superior People's Court.

From 2003 to 2006, a total of 105 cases in Shanghai involved investing public funds, such as the social security fund, in the stock market, with a total value of 6.32 billion yuan, according to the court.

"According to Chinese laws, public funds are not allowed to invest in the stock market, but they are allowed to buy treasury bonds, so some public funds are invested in the stock market through repurchase of treasury bonds," Qi Qi, vice president of the court, said.

Universities and institutions entrust securities companies to buy treasury bonds for them, but these companies invested the money in stocks and futures markets through repurchasing.

Related readings:  Bank branches punished for irregularities  Auditors discover misused money Social security fund to invest US$13b State pension fund seeks safe investments

Most cases related to public fund abuse are due to a lack of the necessary examinations and approval procedures, Qi said, adding that the fund operation depends wholly on the honesty of securities companies.

Statistics show that most of the 15 cases provided by the court yesterday occurred from 2002-2005, when China faced a bear market. Qi said a down stock market triggers securities disputes.

Some securities companies pledged to guarantee customers' principal, but the principal guarantee clauses are unprotected by Chinese laws, said Zou Bihua, a chief judge with the court.

"Principal guarantee clauses are unfair," Zou said. "Any individuals and institutions should take risks themselves but not pass on risks to securities companies." Zou said. He said no securities companies are capable of keeping their principal guarantees in light of the recent cases.

Zou also said that theprivate equityfund is still illegal now, and there are no applicable laws should disputes arise.

Former Shanghai Party chief Chen Liangyu was sacked last year from his post for his involvement in the Shanghai social security fund scandal. Officials are accused of misappropriating 3.7 billion yuan from the fund to invest in risky real estate, road and other projects.