Responding to Global and Local Pressures: Unpacking the Engagement and Investment Strategies of Chinese Pension Funds

Abstract

China’s ageing population and policy reforms have driven domestic pension funds into a rapidly evolving financial market. Although reforms permit equity investments, promote green finance, and introduce personal pension schemes, limited research has explored how these funds adapt to shifting regulations and global stewardship standards. Using 23 semi-structured interviews and document analysis, this study gathers valuable empirical data from Chinese fund managers to explore their investment process, perceptions of stewardship, their responses to global and local institutional pressures, and their practical engagement approaches.

Building on Tilba & Reisberg’s (2019) spectrum of engagement framework, this study adds both empirical and theoretical contributions by distinguishing between public and private equity. It refines the original spectrum, showing that a single pension fund may be passive in public holdings yet active in private ones. Findings reveal that Chinese pension funds favour short-term, risk-averse strategies and often keep equity allocations below regulatory limits. Factors like short-term performance metrics, and tensions between central and local governments constrain active engagement. This thesis presents an engagement matrix identifying four engagement approaches: Passive, Moderate, Intensive, and Strategic. This matrix shows how fund managers view stewardship, identifies the factors influencing their decisions, and outlines typical engagement practices.

From a neo-institutional theory perspective (Scott, 2013), this study explores how global and local soft regulations, social expectations, and industry norms shape pension fund engagement. Chinese funds exhibit limited adoption of international frameworks (e.g., PRI, OECD), favouring local government directives over central or global policies. This selective compliance leads to inconsistent implementation of green finance guidelines—an instance of policy decoupling. The study terms this “selective isomorphism,” indicating that institutional investors selectively follow either global guidelines or local regulations to determine their engagement level.