Low ROE could hurt China's funding of its pension deficit

China''s pension funds will find it difficult to get sufficient returns from existing mainland-listed companies.

China has a problem. It has massive pension liabilities, estimated at 60-80% of GDP, or $600-800 billion, and listed state owned enterprises which show a dismal return on equity ROE. The interim results of Chinese listed companies showed ROE of just 4.1% this year, down from 5% at the same point last year, according to research from emerging markets investment bank CLSA.

To provide for our liabilities, we would typically look at an investment yield of...

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