Social Security in China: Government White Paper


The largest financial problem faced by many aging societies is how to support their older, retired members. That support was once wholly a matter for individual families, with perhaps a minimal safety net offered by charitable institutions. Increasingly, in the usual course of economic development, the requisite transfers become a responsibility of the state—financed either through tax revenues or by pensions offered by (or required of) employers. The combination of lengthening life expectancy at later ages and falling fertility, however, makes those transfers ever more onerous as fewer workers are expected to support greater numbers of retirees. The situation is often likened to the approaching collapse of a Ponzi scheme. Not surprisingly, governments see an attractive solution in what is in effect a reprivatization of responsibility—not back to the family but right to the individual, through a system of individual retirement accounts (albeit with considerable state supervision). The financial trans-fers—savings and later dissavings—then take place over each person's life cycle.

Establishing a social security system—through pay-as-you-go transfers, individual retirement accounts, or some combination of the two—is a major institution-building and administrative task for a developing country, the more so in the context of rapid population aging. China is certainly a case of rapid aging, with the proportion of the population over age 60 projected to rise from 10 percent in 2000 to 20 percent by 2025 and 30 percent by 2050. The document excerpted below, a 2004 White Paper issued by the government of China, describes China's current social insurance provisions and the proposed expansion of coverage (beyond government employees and the urban formal sector) over coming years. In urban areas, it envisages pension coverage of “all eligible employees,” with an increasing emphasis on personal accounts. (Not mentioned is the situation of the large “floating population” of informal rural-to-urban migrants.) In rural areas, reliance on family support perforce continues: in 2003, only 2 million farmers are reported as drawing old-age pensions. A safety-net provision for the destitute elderly with no family provides for another 2.5 million. The document mentions various experimental schemes in rural areas. One, for medical insurance, covers 95 million residents; another offers an annual “reward” to those over 60 who have only one child (or two girls).

The excerpts comprise sections I (Old-age Insurance) and X (Social Security in Rural Areas) and the Conclusion of the White Paper, China's Social Security and Its Policy, issued by the Information Office of the State Council, Beijing, September 2004.