China key to payday for millions of graying Americans

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yu888
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Posted: Aug 04, 2007 - 06:21 PM
Post subject: China key to payday for millions of graying Americans

China key to payday for millions of graying Americans
The Pueblo Chieftain Online

Shanghai's famed Bund zone, where many Chinese and foreign banks are located, is lit up at night in this recent photograph. The growing prosperity of Chinese citizens may soon be vital to U.S. baby boomers. Their retirement income could fall if there's a massive transfer of stocks and bonds and few domestic takers. Share values would be preserved if Chinese citizens and other foreigners invest their own retirement savings in the U.S. stock market.
McCLATCHY-TRIBUNE

SHANGHAI, China - It may come as a surprise to many Americans, but their retirement security may depend in large measure on China's development of capital markets and the willingness of Chinese savers to buy the stocks and bonds that baby boomers will unload in coming years.

Next year, the first U.S. boomers, born from 1946 to 1964, begin qualifying for early retirement under Social Security. They'll enjoy full retirement benefits beginning in 2011.

From that point forward, for about 15 years, there'll be fewer and fewer active workers to support the boomers' retirement, and fewer working Americans putting money into the stock market through their 401(k) retirement plans and Individual Retirement Accounts.

Experts such as Jeremy Siegel, a business professor who wrote the seminal book "Stocks for the Long Run," think that the value of U.S. retiree holdings in stocks and bonds - valued by the Federal Reserve at more than $6.5 trillion - could drop by as much as 40 percent if boomers must rely solely on domestic buyers when they sell their assets.

Enter China. The world's fastest-growing large economy has virtually no retirement safety net for hundreds of millions of Chinese workers. It's in the early stages of trying to create a pension system, one patterned after the defined-contribution model in the United States, in which a tax-deferred portion of a worker's salary is diverted into the stock market for withdrawal after reaching retirement age.

"The savings and buying power of the developing countries is absolutely critical to our own welfare in the future. When all the baby boomers try to sell their assets . . . there are not going to be enough workers in the developed world alone to absorb them," Siegel said in an interview. "The demand that would be coming from Asia and other developing countries will be critical to support the prices of these financial assets."

Rich nations in Europe and Japan have populations graying even more quickly than the United States. Therefore China, with a population exceeding 1.3 billion, holds the greatest potential for U.S. boomers who are looking to transfer their assets. It's why the U.S. Labor Department recently announced that it would help China create an American-style 401(k)-type retirement program.

That could result in a win for both economies.

"I think it is a compliment, in the sense that they're going to be acquiring assets for pension funds and all these things, planning for a time when their boomers start retiring," said Robert Hormats, the vice chairman of Goldman Sachs International, a division of the giant investment bank.

China, he suggests, has a big incentive to create an effective retirement system. Almost 30 percent of its population will be older than 60 in 2040, according to a report by the Center for Strategic and International Studies, a U.S. research center.

"Ten years from now, I can see a scenario where Chinese investors get to put some of their nest eggs overseas," said Fu Teh-Hsiu, the chief executive officer of Everbright Pramerica Fund Management Co., a joint venture between China's Everbright Securities and the U.S. retirement-fund giant Prudential Financial.
China's stock market at a glance

- Most shares are traded in the Chinese currency, the yuan, and are available only to Chinese investors. These are Class A shares. Foreigners must get government approval to own them.

- Class B stocks are more open to foreigners. They represent a smaller number of Chinese stocks and are valued in dollars.

- Class H shares are Chinese companies from the mainland listed on the Hong Kong exchange. U.S. investment funds frequently sell these as China funds, but they don't really reflect the sizzling Shanghai exchange. Hong Kong is part of China, but administered by Beijing under a "one country, two models" approach.

http://www.chieftain.com/business/1186214614/4

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