BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/33
China decided in 2017 to transfer a handful of 10 % stakes in state-owned enterprises to pension funds. Later, the list of enterprises was broadened to 600.
Lou Jiwei, head of the national social security fund, said in spring that the 10 % stakes of just five state firms had been transferred in full to the pension funds. In July, the government announced it wanted to accelerate the transfers and further broaden the list of firms.
Pension funds are in dire need of additional assets as their current levels are inadequate to meet future obligations. China’s population is ageing rapidly, while the number of pensioners is growing and the dependency ratio is soaring. The China Academy of Social Sciences (CASS) estimated last spring that the pension funds will be exhausted around 2035 without reform. The government has given assurances that pensions will be paid in full also in future.
Raising the retirement age is seen as a critical reform. Men currently retire at 60 and women at 55 or 50 depending on the nature of their work. At the same time, the average life expectancy in China has risen to 76 years. While authorities have from time to time called for raising the pension age, lately the subject has largely fallen pretty much off the radar.
China’s pension system needs reform. Presently, provinces have their own funds. The pensions of migrant workers are paid into the provincial fund where the worker is employed. Pensions must be paid out, however, from the migrant labourer’s home province if the worker has not worked long enough in another province. As a result, there are huge differences across provincial funds. Provinces in Northeast China in particular have seen their pension funds drained, while provinces that attract migrant labour enjoy burgeoning pension funds and have even granted companies reductions in their mandatory pension contributions.
For years, China has been expanding the number of persons covered by the pension system. Officials say that as of the end of 2018 about 940 million people were covered under some kind of pension scheme. Some pension, however, are rather meagre. China’s finance ministry says that the average monthly pension was just 120 yuan (16 euros) in 2016 for rural residents and individuals in cities who had not worked at a wage-paying job. This system covers over 520 million Chinese. Persons who have performed wage labour for their entire career in a firm or as a bureaucrat were paid on average just under 2,400 yuan (325 euros) a month in 2016. The government has sought to encourage citizens to participate in various private pension savings plans geared to the individual, but participation has been modest. Children have traditionally provided for their elderly parents in China.