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.

China's rise over the last four decades has been widely acknowledged as a phenomenal event having the country experienced the fastest sustained expansion by a major economy in history with more than a hundredfold increase in GDP since 1978. 

Starting from 1953, China has maintained the habit of releasing national plans on a five-year basis with the aim of achieving economic development and creating the conditions for a smooth transition into a modern and efficient society. 

China announced the implementation of its private pension plan to supplement the country's old-age insurance mechanism on November 25, open to qualified citizens in 36 pilot cities and regions including Beijing, Shanghai, Guangzhou, Xi'an and Chengdu. 

On December 1, the China Banking and Insurance Regulatory Commission (CBIRC) issued a statement confirming that China is ready to launch commercial pension trials starting from the beginning of 2023 and for an initial one-year period. Important domestic insurance firms such as PICC, China Life, Taiping and Guomin have been selected for the offering of products and services.  

The first consideration to make is that the initiative represents an important move from China to fine-tune an existing pension system that is ill-suited to address demographic changes. The seventh national census, released last year by the National Bureau of Statistics (NBS), showed that the number of Chinese people over 60 has consistently grown in the last decade reaching a total of nearly one fifth of the entire population. In addition, estimates predict that the elderly population will grow to 300 million by the end of 2025 with serious consequences on the state pension fund if proper policies of intervention are not introduced.  

A modern pension system is constituted by three pillars where the first pillar is the compulsory state pension, and the second pillar is the voluntary additional employee pension plan in which both employer and employee make monthly contributions. The third pillar, which is represented by private pensions and commercial pension, is seen as vital for China's mix of aging population and low birth rate. It is where the country is focusing on right now as a way to achieve a major goal highlighted by the 14th Five-Year Plan. 

I believe that one of the major factors at stake for the success of this initiative remains the fact that large part of potential customers has historically seen in the real estate sector a safe way of long-term investment. Therefore, Chinese people are basically unaccustomed to the idea of allocating their savings into personal pension products.

In this sense, an effort must be made by all related stakeholders in building consumer trust and in improving the level of general understanding of financial products available on the market to the public. Insurance companies must help clients providing customized advisory to make plans for retirement, increasing the level of understanding in risk and opportunities resulting from this financial choice, and emphasizing the tax incentives for participants in private pension schemes. 

I am convinced of the fact that the recent involvement of the Big Four state banks, Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank, as issuers of retirement savings products, is key for the success of the initiative. This is because these large financial institutions are well-known and trusted by the public and have a vast presence all over China through their local branches.  

Chinese authorities' push for a modernization of the domestic pension system, along with the country's commitment to opening-up its financial market to foreign investments, represents a window of opportunity to overseas companies that would be delighted to be able to tap into a market that is still under-insured.   

It is no coincidence that global asset managers including BlackRock and Fidelity Investments have consistently increased their presence in China in recent years while Chinese ventures of foreign asset firms such as J.P. Morgan and UBS are now preparing to expand their retirement offerings.  

The possibility that in the not-too-distant future China will solve the need for economic sustainability, while successfully completing the transition into a more modern and sophisticated financial market, depends on the alignment of interests of all parties involved to a common goal. 

The launch of a private pension pilot program and the upcoming commercial pension trials seems to be the demonstration of a step in the right way. 

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