Encouraging retirement savings: The role of Chinese pension funds

In 2018, the Chinese government introduced a regulatory framework for target pension funds, specifically Target Date Funds (TDFs) and Target Risk Funds (TRFs), marking their debut in the Chinese market. This framework imposed stringent requirements on fund family size, lock-in periods, and manager experience. Within this institutional context, we first document these funds characteristics are positively associated with fund returns and fund flows for TDFs & TRFs. Conversely, we find that these same restrictions provide little to no benefit for standard mutual funds. In the mechanism test, we further find that TDFs & TRFs are associated with greater flow stability, contributing to their outperformance over standard mutual funds. Moreover, managing TDFs & TRFs may inadvertently dampen the performance of non-TDFs and non-TRFs managed by the same fund family, potentially due to increased compliance and disclosure costs as well as fund family strategic considerations. Our results show that the regulatory requirements imposed on TDFs & TRFs are associated with both benefits and costs, suggesting the critical importance of recognizing the distinct policy implications for regulators, fund issuers, and investors, particularly in the context of retirement savings.