Article at a glance:

Filling China's pension gap

China's current pay-as-you-go pension system is on the verge of bankruptcy because of a rapidly aging population. To finance the pensions, China's government must fill a gap that will reach $15 billion by 2005, rising to $110 billion by 2010. To do so, it will pursue initial public offerings of nonlisted state-owned enterprises and sell existing nontradable, state-owned shares through secondary market offerings. But reforms are needed to meet the rapidly escalating pension obligations and to manage pension assets more professionally.

The take-away

Such reforms will drive the future evolution of China's nascent domestic primary and secondary equity markets and of fund management in this rapidly changing country. Implementing the proposed reforms will make the domestic Chinese equity market the most important in Asia outside Japan. Securities and fund-management companies with global aspirations cannot ignore China.