The Economic Information Daily has recently interviewed Zheng Bingwen, director of the Center of International Social Security Studies at the Chinese Academy of Social Sciences (CASS), concerning China’s social security system. The following are the questions and answers:

Question (Q): Would you please describe China’s progress regarding its institutional reform of the social security system over the past decade, both within the urban and rural communities?

Zheng Bingwen (Zheng): The role of the social security system has been increasingly significant in the daily life of the Chinese over the past 10 years, with the system expanding wider with the continuing growth of participants as well as beneficiaries.

The system has been in the fast lane since 2005, a year that saw the ratification of 20 new policies created in a bid to include the neglected groups. The system particularly witnessed the launch of the "New Rural Social Security System" and "Pension Insurance for Urban Dwellers" during the global financial crisis of that time. By the end of 2011, the country had more than 1.3 billion people joining the fundamental healthcare system and 622 million were entitled to basic pension insurance.

Aside from the abovementioned, the social security system forms an indispensable part of society with its payments rising annually. The previous eight years had seen a consecutive rise in pension payments, registering an average increase of 13 percent per year, tantamount roughly to the increase of urban salaries.

China's social security system remains imbalanced in terms of its multi-stratified functions, with enterprise annuity and commercial insurances comprising a significantly smaller portion in the pension system. Therefore, fiscal allocations now feed most of the retired urban dwellers through their monthly pension payments and in many cases makes up their sole income.

China's social security system remains imbalanced in terms of its multi-stratified functions. [file photo]

Q: As the social security system has attracted concern in recent years, bearing in mind the recent debate on protracted retirement age in particular, how do you look at the problem and the reasons that lie behind it?

Zheng: Each discussion about the retirement age has almost inevitably been triggered by random words coming from random officials. For example, the recent debate was sparked by an online response from an official with the Ministry of Human Resources and Social Security (MOHRSS).

Among the strongly voiced opposition against the protracted retirement age, one major concern is the unreformed social security system of civil officials and non-market-oriented social institutions, whose pensions are usually double those of people working in commercial enterprises. For most people, the protracted retirement age is obviously nothing but a new rent-seeking scheme.

In such a system, reform is stratified rather than unified and that is precisely the big vulnerable point in improving the social welfare system. The double-standard between the normal social organizations and governments or non-market oriented institutions in particular, will probably pose the first threat to the reform.

 

Q: What’s your opinion about the major target for the next round of reforms concerning the abovementioned problems?

Zheng: Thanks to the massive transfer payments and the expanding incremental funds, the current payment ability of our pension system is undoubtedly strong and the prolonged retirement policy seems unnecessary as the income of the pension system far exceeds its expenditure.

But, China's economic growth will not always remain higher than 10 percent and annual fiscal revenues will not maintain a rise of 20 to 30 percent. Additionally, the current fiscal transfer pay, with little concern over costs and budgets, is surely not to last forever. It is now time to balance out retirement age and life expectancy in an aging society.

In comparison to developed countries, China faces an even larger aging society and the solution lies in nothing else than the mere adjustment of the retirement age. At the same time, we need to design a stimulus package by establishing a real incremental or a nominal incremental individual pension account system as to make retirement a flexible personal choice.

According to the 12th Five Year Plan on the Social Security System, China will set up a stimulus system according to personal premiums, indicating both index and institutional reforms.

 

Q: Will the reform cover the top-end of society, which in the public opinion has always been immune to any changes? Is that why institutional reforms are so difficult to achieve in China?

Zheng: If the so-called "Crossing the river by tiptoeing over the stones ahead" is the developing strategy adopted some 20 years ago in planning and building the social security system, then today that lack of comprehensive and accurate designing would probably lead to a relapsed society or spawn even more severe social problems.

There has been no financial calculation of the size of debts owed in the system. China has not yet issued a single report of comparatively overall finance calculations over the middle- and long-term, figuring out the precise data of both the listed and invisible debts of the pension insurance system. For other countries, this is simply unheard of.

Other than that, the different stages of reform are not well regulated. There is no specific blueprint for the ongoing pension reforms, nor has there ever been one. Almost all ongoing processes and policies are just temporary and random.

What's more, because of a severe lack of professional knowledge, reforms have been carried out rather infirmly. The reforming of social security system should be concretely modeled and sport a clear goal.

Previous experiences in other countries also tell us that we should understand that it takes time to reform a pension system, crossing several decades within one generation, and we cannot afford ceaseless experiments, let alone failures.

The government departments responsible for the reform also often lack coordination. As a multi-layered and multi-subsisted sub-system of secondary wealth distribution, the pension insurance institution cannot be reformed without cooperation among ministries. But the coordination entirely depends on the teamwork spirit of top ministry officials.

The inadequate cross-ministry coordination has hindered the implementation of some major policies for development and institutional reform, neglecting the public interest. This uncooperative attitude keeps the ministries tied up in an endless struggle – all at the expense of the majority’s interests.

Therefore, the repeated controversy surrounding a protracted retirement age results from the indecisive planning of the country’s leading group. We need comprehensive design, accurate calculations and specific processes to achieve success without aborting the reform in process.

The article was first published in Chinese and translated by Wu Jin.