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Chinese Auditors Uncover 'Massive' Misuse of Social Security Funds

A Chinese government audit has found that local officials have misused $4 billion in social security funds that are meant to provide a safety net for China's growing population of retirees. As VOA's Michael Lipin reports from Hong Kong, one reason for the massive fraud is Beijing's lack of supervision of local governments.

The report by China's national audit office shows that almost four percent of the country's social security funds were not properly accounted for last year.

The audit covered $103 billion in social security contributions managed by local officials throughout China, excluding Shanghai and Tibet.

Chinese state media reported Friday that local authorities had misused $4 billion in funds that were meant to pay for pensions, medical insurance and other welfare programs.

Robert Broadfoot, managing director of the Hong Kong-based Political and Economic Risk Consultancy, says local governments have been under pressure to divert the money to pay for other public projects.

"Over the past decade, responsibility for managing a lot of the state-owned enterprises and housing and education issues have moved from the central government to the local government," he said. "So what they're doing to fund some of their increased responsibilities is saying, let's draw on the pension funds."

Broadfoot says China's central government should revamp its social security system to ensure that welfare programs are adequately funded and that local officials adopt good governance.

The Chinese audit agency says it severely punished those responsible for last year's misspent funds, but the agency did not say who was punished or how.

Broadfoot says China's system for fighting corruption is not comprehensive enough to stop municipal authorities from plundering state assets.

But he also says the latest revelations of social security fraud are unlikely to hurt foreign investor confidence in China.

"The way a lot of the foreign investors are looking at it, perhaps the dollar signs are blinding their eyes," he added. "They're saying, we're making money, and China is growing rapidly, and if you look at the types of corruption that are being singled out, they're arguing it's really a Chinese affair. [They would say,] 'It's Chinese cheating Chinese, not Chinese cheating foreign investors.'"

Broadfoot says that in the long run, the misuse of public funds in China will hurt everyone by making it harder for Chinese companies to raise money on financial markets.

Beijing has promised to address the problem by supervising social security bureaus more closely, and requiring them to rapidly report cases of fraud.

Last September, China's government fired Shanghai's Communist Party chief, Chen Liangyu, after he and other officials were accused of improperly investing $400 million worth of pension funds.