The role of government enterprises during the reform period has changed drastically.
And of course we're talking about since 1980,
before that time and even into the 1980s
enterprises, state enterprises, about 100,000 of them
all throughout China were essentially small societies
where everything in terms of welfare was provided to
the full-time employees of those enterprises.
Again, we're talking about perhaps a hundred million people,
not a huge percentage of China's population.
As the reforms, economic reforms, commercial reforms swept through the state sector,
they were really not able to
fulfill the welfare functions that they had once been able to do
for various reasons.
They were now
responsible for their own profits, and many of them in fact
began to take some of those profits and build housing,
much-needed housing for the workers.
But in terms of pensions,
in terms of health care, the burden was just too great.
By the 1990s with state-owned
enterprise SOE reform on the horizon, on the agenda,
it was up to local governments to figure out a way,
and the state council and various ministries of course.
Put together, a set of policies that allowed
local governments, not just provincial governments but
urban governments to
begin collecting
through something called social insurance agencies,
collecting of
fees, payments, premiums, if you want to think in insurance terms,
from all the enterprises that were located within
the locale of the city.
So these social insurance agencies
along to some extent with the
agencies of the branches of the Ministry of Labour
gained considerable power because they could go to even a
very large state-owned enterprise
that might be commanded or coordinated
under the direction of some national ministry in Beijing,
and say, hey, you owe us
20 percent of your entire wage bill for pensions.
On top of that you owe us another smaller percentage for healthcare premiums.
On top of that for each individual worker,
we're going to take 8 percent for pensions,
another a smaller few percentage points for health insurance premiums.
So these social insurance agencies amassed very large treasure chests
that then it was their responsibility to now pay
for the pensions of the retired workers,
pay for the health care of the current unretired workers,
pay for workplace, injury compensation,
costs related to their workforce.
And the tricky thing was, who pays for the
30 or 40 million workers who have lost their jobs
through layoffs, through state-owned enterprise bankruptcy?
That became more complicated and it led to a lot of protests
as neither the old enterprise nor the social insurance agency
would provide support for these
30 to 40 million laid-off workers.
Here we are, 20 years later almost from that time,
Those laid-off workers are kind of trapped in between.
They didn't have a whole lifetime of paying into social insurance
nor did their enterprises do so.
And at the same time,
they're not able to be covered by
health insurance and pension insurance and so,
many of them are on
minimum livelihood guarantee or the dibao,
some of them are on a kind of urban resident pension.
We don't really know these numbers,
but it would be really, but it's something important to pay attention to in the future.
Local governments in China's welfare regime play a very important and very complicated role.
In some ways it's as though there were not one
health insurance system or one national pension system.
But in fact, for as many urban localities as there are in China,
let's say around 2000 or more, for numbers are rising every year,
each of these city governments has established its own pool,
its own risk pool in insurance terms, its own pool of funds to cover,
to both collect revenues to fund the pension and social insurance system
as well as to pay for the benefits and
medical reimbursements for the people who live within that territory.
So it's highly fragmented in this way.
In some respects
this gives
local governments as is very important in China's reforms
the incentive, the monetary incentive to go out and collect revenue.
So you're using the capabilities of the local government
and in some ways,
encouraging them to do what they do best.
But on the other hand it's extremely inefficient because
rather than having one centrally administered
or even 31 provincially administered pools,
you have these 2,000, some are
urban and county funds and pools
that are responsible only for their workforce.
So, you know the answer, one solution of course is to scale up to the provincial
or scale up even to the national level.
This sounds easy on paper, but in fact, it's very difficult to do in practice because
local governments are like human beings,
and we don't like to share something, money that we've collected
and earned through our hard work.
We don't like sharing it with another locality
who may have a higher level of
retirees or sick people to support.
And so this leads to
continued fragmentation at this county and city level.
Again, in comparative terms,
a highly distinct, highly unique and...
I've been studying this for almost 20 years now, and I still ask the same question:
Why can't this be scaled up and more or less get the same answer
is that it's just complicated and there's a lot of resistance.
This may be something if we're in an era where Xi Jinping is trying to do bold
and controversial and and push through sorts of
reforms that have never been yet able to have been accomplished.
This might be an area where he attempts to do so.
China's pension system faces multiple challenges today,
one of which is it's highly fragmented character
that I alluded to in an earlier comment.
2,000 locally administered pools rather than one national pool,
highly inefficient, highly inegalitarian.
Depending on where you live, where you were born,
it's very difficult to gain access,
even if you've moved to a wealthy area,
difficult to gain access to the
pension system or pension benefits from that area.
Another challenge, of course has to do with the
ever increasing levels of fragment,
well
fragmentation on a sectoral or social level of course.
So we're not talking about local government's fragmentation,
we're talking about sectoral fragmentation or workplace status fragmentation.
A third and final challenge, of course the big one, is
how will the pension system continue to sustain itself
at a time when you have rapid
population aging, going from a macro kind of population level of
about 8 working age population people for every one retiree a few years ago,
to by 2035 or 2040,
3 working age population people for every one retiree.
So that is a major challenge. People talk about this a lot.
The other problem is that even right now,
before the real serious aging population wave sets in,
the benefits of pensions, the amount of money that is being
adjusted and increased every year to people over the age of 60,
it is for men younger for women in the workforce,
women retirees from the workforce.
that the rising benefits are not going to be sustainable because
you are not going to be able to collect enough revenue
in order to continue to
increase the benefits at the rate at which
local governments are deciding to pass along
pension increases on annual basis to those of working age population.
This is a familiar pattern that one sees in liberal democracies
where elderly citizens as voters are very important constituents,
and they're very well protected and very well taken care of
when it comes to pensions and health care.
Yes, the famous line that demography is destiny.
Well,
as I think you could put it into a rhyme:
will China's demographic demise lead to the end of China's rise?
Something like this.
You see one can find many sorts of publications
that predict
the very worst kinds of economic and social scenarios
accruing to not just the aging population, but also
male-female ratio population imbalances.
Yes, it is true that the
ratio of the working age population to those over,
say age 65,
is going to decline severely in the next many years.
One thing that is an obvious
step that could be taken
and is being taken, to some extent
is to increase the retirement age from the very low
ages of 60 for men,  55 for white-collar women,
50 for blue-collar women.
These ages were put in place at a time when China's
life expectancy nationwide
because of high levels of infant mortality was even below the retirement age.
They were in the 30s and 40s,
this is in the early 1950s
that these retirement ages were put in.
Lifting the one-child policy,
reforming the one-child policy, as has been done,
this is another policy response.
Again one that for short and medium term,
nothing really will accrue
in terms of  the overall working age population ratio to retiree ratio.
But one thing that I think people overlook in these scenarios
is the following:
that you have something like 280 to 290 (million) migrants
who are coming to cities to work.
They are, generally speaking,
not paying into any of the five forms of social insurance.
Healthcare and Pensions being the most important.
Maybe 20 percent, maybe 25 percent
of migrants are paying into healthcare and pensions.
If you could somehow get a hundred percent,
280 million migrants paying into your healthcare and pension system,
then you would see
great benefits in terms of the fiscal balances,
the financial balances, the cash flows
that are necessary to operate a sustainable pension system.
It's very much akin to
telling an American government that
if you were not so fussy about immigration, and you had
people from outside the country coming to work in the United States,
they would pay into the social security system, and you would have
a great, you know, source of revenue if you want to be really instrumental about it.
