| Asia Monthly July 2009 |
| China embarks on expansion of social security system |
| Yuji Miura |
| China is pushing ahead with the development of a social security system that is attuned to the needs of agricultural communities and migrant laborers. In order to achieve the goal of an 'harmonious society', central government will need to abolish the practice of 'farming out' social security provisions to local governments, and fulfill a more directive role itself.
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Pension system to include agricultural and migrant workers
At a group study of the Political Bureau of the Communist Party of China Central Committee in late May, General Secretary Hu Jintao pointed out the need for haste in developing the country's social security systems. The 11th Five Year Plan (2006 to 2010) states that 'More emphasis should be put on social fairness so that all people can share the fruits of reform and development', in response to which the government, in order to expand further public pension and medical insurance provision, issued a draft social security bill in late 2008, and is pushing ahead with preparations to pass this into law. It is thought that General Secretary Hu raised this issued partly out of concern over the rising vulnerability in the standards of living of the poor, in the wake of the financial crisis.
One of the main features of this soon to be passed Social Security Law is that it seeks to help agricultural workers and the so-called nongmin gong, agricultural workers who leave their communities in search of work in the cities. Both of these groups have effectively fallen outside the scope of the existing schemes. Currently, a variety of initiatives are being tried out, and many of these are incorporated into the draft bill. One initiative that has attracted attention is the reform of the pension system. A mere 10% of those in agricultural communities are members of the plan, a stark contrast to the zhigong workers, salaried workers who work as civil servants and in state owned enterprises, almost all of whom are members of the pension system. In order to change this state of affairs, the government has been working hard to spread the 'New Old-Age Insurance System in Rural Area'.
The 'New Old-Age Insurance System in Rural Areas' has been tried out in some areas since 2006, and it has been characterized by increasing the share of subsidies paid by collective bodies (village and township governments and corporations) and local government, while reducing the insurance contributions paid by the individual. Under the current plan, contributions paid by individuals are accumulated and then paid out once the subscribers reach a certain age. Collective bodies are only obliged to contribute as far as they are able, so that in poor areas the vicious cycle of 'low contributions, low payment', with a chronically low subscription rate, has been generated. Under the 'New Old-Age Insurance System in Rural Areas', it is expected that there will be greater incentives to attract subscribers, in order make a significant increase to the subsidies that can be paid by collective bodies and local governments.
The reform of the pension system will also benefit the nongmin gong. As of 2005, no more than around 15% of these migrant workers were enrolled in city pension plans. The main reasons for this are thought to be the heavy burden of insurance payments on the part of the employer, and that these workers tend to move around a lot, so there is little advantage to them in joining such planss. In 2006, the government reduced the insurance contribution ratios for nongmin gong from the original 20% from the employer and 8% from the employee to 12% from the employer and between 4% and 8% from the employee. Other steps taken to promote subscription by nongmin gong in urban pension plans include allowing these workers to continue to contribute to insurance programs after they move to other cities and agricultural communities.
The reform of the pension system is in the trial stage, and it will take some time to discern whether it will be able to guarantee security to the entire populace in their old age. However, judging from the following points, the way forward looks to be fairly difficult and there would appear to be little room for an optimistic point of view.
The first point to be made is that there is a possibility that the 'New Old-Age Insurance System in Rural Areas' may well amplify the wealth gap between agricultural communities in coastal areas and those in the interior. As efforts to spread the system get underway, it has been decided that the relative size of insurance contributions to be paid by the individual, collective bodies and local governments will be determined in accordance with local conditions. However, the wealth of each village depends on the level of township enterprise development. In one district of Beijing the relative proportions of insurance contributions to be paid by the individual, township and local government are 2: 5: 3., but it would be impossible to apply these ratios in the interior. While the new system will work to correct the disparity in subscriber ratios and payment levels between urban and agricultural communities, there is a possibility that the relative standing of interior agricultural communities will be pushed lower than ever before.
Further, it is also a problem that the government's efforts to increase the rate of social security system subscribers among migrant laborers has fallen rather flat. At the end of 2008, the subscription rate among the nongmin gong was 17%, practically unchanged since 2005. Part of the background to this state of affairs is believed to be the fact that the organizations charged with management of the pension system are not administratively capable of handling account transfers. As the problem of unemployment among the nongmin gong deepens in the wake of the financial crisis, if laborers tend to favor employment over pensions, there is a real possibility that the subscriber ratio will fall in the months to come.
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Improved access to medical treatment?
One other initiative that is attracting attention within the reform of the social security system is the reform of the medical treatment system. The government has decided to try to reform access to medical treatment by investing some 850 billion yuan over the next three years, till January, 2011, in order to 1) spread the public medical insurance system, 2) review medicine prices, 3) develop medical institutions in rural areas, 4) homogenize hygiene services, and 5) reform public hospitals. In comparison with 198.9 billion yuan of government expenditure on medical treatment in 2007, this new figure is a clear indication of how seriously the government views the issue.
Full details are not yet clear, but there is no doubt that a review of medicine prices and the further development of medical facilities in rural areas will do much to improve access to medical treatment for the poor. However, this plan, too, fails to include a review of the public medical insurance system, and it must be said that the way ahead looks difficult. One of the problems is that there is a public insurance system for peasants called the New Rural Cooperative Medical System. In this system, the patients must pay a large contribution by themselves and it is likely that, even if the poor were to join the system, they would not be able to make real use of it. According to a 2002 survey of household finances in Fengqing County in Guizhou Province, the system most benefits those with high incomes and poor health, and offers hardly any benefit for those with low incomes and relatively good health.
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From "farming out" to government led management
The economic development resulting from the introduction of a market economy has resulted in widening income disparity gaps. As long as the economy depends on market distribution principles, it will be impossible to correct these gaps. One motivating factor behind China's urgency in enhancing its social security provision is a strong sense of crisis with regard to this issue. Of course, shifting the social security system away from its urban householder bias and widening its availability among the farmers and migrant workers who form the base stratum of society is the correct thing to do. However, it is by no means certain to what extent the parading of investment performance results, such as the scale of funds to be invested to that end and the raising of subscription levels of 'new'plans, will translate into real improvements in the quality of life of individual people.
The reinforcing of the social insurance system involves nothing less than replacing the market distribution principle 'contribution' with that of 'need' and, to that end, the constructs that have hitherto supported economic growth will need to undergo radical restructuring.
One of the main issues facing China's social security policies is to what extent the wealth disparities generated by the practice of 'farming out' the work of provision to local authorities can be balanced out. In China it is often the case that the details of a plan are determined according to the needs of actual circumstances, but this has led to a state where the social security system has actually played a significant role in amplifying the wealth disparity. In order to ensure that the goal of an 'harmonious society' does not wind up as just a slogan, rather than focusing on the amount of money invested, the government will need to be clear about the targets to be achieved, and then play a guiding role in system reform, including the procurement of finances and the household registration system.
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