China's top watchdog of social security funds has issued a notice to tighten control over investment of social security funds.

All social security funds, except for amounts which are required to be paid, must be deposited in banks or used to purchase state treasury bonds. They are not allowed to be put into other investments before the state has devised new regulations, according to a notice by the Ministry of Labor and Social Security.

The notice was issued following a widely publicized scandal in Shanghai, where 3.2 billion yuan (400 million US dollars) of a pension fund was found to have been lent to a local company for a toll road. The local labor bureau chief overseeing the pension fund has been sacked.

The notice ordered social security funds to be put in special accounts with separate management over their collection and expenditures.

The funds can only be allocated for special uses set by the state and no government departments or individuals are allowed to seize or embezzle them, said the notice.

The social security funds cannot be misappropriated to balance the financial budget, it said.

Pensions must be paid on time and must not be withheld, it noted.

It asked all institutions operating social security funds to set up a strict application and checking system for work units and individuals who pay insurance premiums. It pledged harsh penalties for the misuse and fraud of social security funds.

The social security fund has been growing at an annual rate of 20 percent in China. And the fund had exceeded 1.8 trillion yuan (about 230.44 billion US dollars) by 2005, accounting for 10 percent of the country's gross domestic product (GDP) for the same year, according to the Ministry of Labor and Social Security.

In the meantime, the country has also set aside 200 billion yuan as the strategic reserve for the national social security fund. And corporate annuities from 24,000 profit-making enterprises across the country have surged to 68 billion yuan.

According to the official with the ministry, who asked not to be identified, at least 16 billion yuan out of the massive social security fund has been embezzled since 1998.

(For more biz stories, please visit Industry Updates)