Editor's note: Matteo Giovannini is a finance professional at the Industrial and Commercial Bank of China in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the author's views and not necessarily those of CGTN.

The publicly announced data from the seventh national census, released by the National Bureau of Statistics(NBS) nearly two weeks ago, has underlined the most urgent challenges China needs to solve to maintain its growth trajectory in the foreseeable future.

One of the most debated outcomes from the census is represented by the number of Chinese over 60 who now constitute nearly 19 percent of the entire population compared to nearly 5 percent in 2010. This adds a high degree of pressure to the state pension system, considering that the elderly population is predicted to grow to 300 million by the end of 2025 and that the state pension fund is projected to run out of money by 2035 and requires adequate policies of intervention to develop a modern and sustainable domestic pension system.

In this context, the China Banking and Insurance Regulatory Commission's (CBIRC) recent announcement of the launch of a one-year pilot insurance scheme in the eastern province of Zhejiang and Chongqing Municipality, promoting endowment plans that offer stable returns over 10 years after retirement, represents welcome news since it goes in the right direction of introducing long-awaited reforms to the country's pension market.

The first consideration to make here is that through the launch of this pilot, which is expected to start in June, China demonstrates its awareness of the urgent necessity of developing the "third pillar" of its pension system, a major goal highlighted by the 14th Five-Year Plan. In this sense, China is following the path of most advanced nations that fundamentally rely on three pillars for their retirement systems – a first pillar represented by a national and provincial social security fund, a second pillar represented by corporate annuities and a third pillar represented by individual pension schemes.

It is estimated that Chinese households hold a massive amount of deposits in local banks, roughly equal to the country's gross domestic product (GDP), and that these deposits are mainly placed in short-term products with no pension features. This situation offers a great opportunity for regulators to promote awareness of the long-term benefits of individual pension products as a way to build wealth during one's lifetime in anticipation of retirement.

The fact that six major insurance firms, China Life Insurance, People's Life Insurance, Taiping Life Insurance, China Pacific Life Insurance, Taikang Life Insurance and Xinhua Life Insurance, are going to participate in the pilot, guarantees the population easy access to their services due to the extended presence these companies have throughout the Chinese territory and the strong link to the state-owned banking system.

The Chinese government's March announcement of the plan to create a state-backed pension firm that is going to run similar to Sweden's, where a public agency operates as a clearinghouse that acts as an intermediary between workers and investment managers, shows that census data more than a necessity.

In particular, I believe that at this stage of economic transition, it is of paramount importance to educate the population of the benefits of private retirement savings. This can only be achieved by connecting people with asset managers who know about the products available on the market.

The development of a modern pension system on the Chinese mainland can also be achieved by leveraging Hong Kong's role as a provider of dedicated and sophisticated financial services and promoting more financial interconnectivity.

The planned launch of a cross-border scheme dubbed "Insurance Connect," a project that is part of a blueprint published by the State Council of the People's Republic of China and aimed at promoting more financial integration within the Greater Bay Area, could match the demand for sophistication and diversification from people on the mainland with the offer of professionalism from Hong Kong-based institutions.

Taking into account the authorities' push for an improvement of the domestic pension system and the ongoing opening-up of China's financial market, the pilot insurance scheme could also potentially offer a window of opportunity to foreign insurance firms that would be more than happy to satisfy the necessity of a still under-insured market with their globally distributed products.

In a few words, the launch of a one-year pilot insurance scheme in Zhejiang and Chongqing can be seen as the result of the Chinese leadership's well-thought-out strategy to solve the urgent necessity of economic sustainability while raising the quality of its domestic financial industry to another level.

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