Social
&
Welfare Reform
China
Trends and Tensions
Entitlement (权利) Urban Demand Rural Demand
New welfare Trends
Long-term Viability
Policy Reform
in China
Principles of social security pension design
Potential Chinese gain from an investment-based system
The current social security pension system in China
Alternative options for the Chinese defined-benefit plan
The transition path
Entitlement
The village with only minimal local government welfare • The most people believe that either the central provisioning suggests threestaged village response the local state should be responsible for
There have been signs of growing discontent at the prospect of losing privileged insurance benefits and services
or
providing the security provisioning to which they believe they are entitled. The village & The city • The dual challenge for China’s government during the 1990s : 1、继续满足义务和期望。 2、建立新体制
Urban Demand
总体趋势：1980s, provide all kinds of welfare service. During the 1990s, two socio-economic trends Non-public sectors State-owned enterprises To reduce the proportion of public sector work force eligible for benefits in the future, employees are increasingly placed on short-term contracts which carry fewer benefits.
Rural Demand
During the past 20 years coastal township and village governments with profitable enterprises have emulated city state-owned enterprises • Inland township and villages without enterprises seldom have local revenues to add to minimal levels of state welfare assistance. • Throughout China’s townships and villages, whether or not they have enterprises, rural demand for social welfare has risen as both ole and new sources of social welfare are increasingly at risk.
Policy Reform
From the mid-1990s new pension reforms have had three key objectives: • To establish a society-wide system of pension-fund mobilization and management which takes over from the enterprises • To share the costs of pension insurance between individuals as well as enterprises and the state • To move from a “pay as you go” system to some form of partial accumulation
Policy Reform
A three-tiered system: 1. Compulsory pensions organized by the state which are both basic and earnings-related. 2. Supplementary occupational pensions which may be optional or semi-compulsory 3. Individual pension schemes which are entirely voluntary.
New welfare Trends
The five trends of the reform programs of the 1990s:
• the growing separation of social welfare from its pervious enterprise base • The decentralization of social welfare provisioning • A diversification in delivery systems, shifting responsibilities to markets and to non-government organization • The establishment of non-profit organization is a recent innovation. • The strengthening of informal community and family selfprovisioning.
Long-term Viability
Unsolved tensions:
Market competition and fiscal constrain
Government and non-government organizations
Individual and government
Economy and welfare provision
What
about in China?
Principles of social security pension design
A unfunded pay-as-you-go (PAYGO) PENSION system.
• The rate of growth of aggregate real wages, is the sum of the growth rate of the population and the growth rate of productivity.
V总工资＝V人口 V资本生产力
*
• Actual economies do have capital stocks, and the marginal product of capital is greater than the growth rate of aggregate wages.
Principles of social security pension design
The choice between a defined-benefit and a definedcontribution system.
• Defined-benefit: based on a formula that typically involves the number of years of work and the past history of wages.
Defined-contribution: employees, or their employer or both, make contribution to individual accounts during working years. Conditional defined benefit system: Individuals have defined contribution accounts but annuity provided but are also guaranteed a minimum amount (a defined benefit).
•
•
Potential Chinese gain from an investment-based system
假设每三个工人就有一个退休人员。为了向退休者提供相当于 原工资的60％的养老金，每个工人需缴20％税率的税。 那在有基金为基础的体制中，提供同样的福利需要多少成本呢？ 根据公式： V总工资＝V人口*V生产力 (1.07)30=7.6 In a funded system the revenue are used to increase the nation’s capital stock. If that additional capital earns a 12% rate of return, each dollar saved at age 45 grows to 30 at age 75. (1.12)30=30
Potential Chinese gain from an investment-based system
The transition from a PAYGO system to a funded system. 错误认识：during the transition to a funded system the combination of the tax required to finance existing benefits and the savings required to fund future benefits would be double. 解释错误： 1. The maximum additional cost to current employees would be the 5% required to fund their future retirement annuities. 2. The tax rate 20％ would gradually decline over time during a transition as new retirees draw on their funded individual accounts as a source of retirement income.
The current social security pension system in China
The real returns on government bonds and bank deposits have been very low and in some recent years have actually been negative. So the government would then have to raise future taxes to pay interest on these additional government bonds. As restrictions on investments are relaxed in the future, these defined contribution accounts will invest in nongovernment securities. Then, with a higher rate of return, the same benefits can be financed with a lower contribution rate, or the same 10%contribution rate can be used to obtain a higher level of benefits.
Alternative options for the Chinese defined-benefit plan
Modify this part of the pension system in either of two : 1. Substituting a funded plan---base on investments in existing government bonds or non-government enterprise securities 2. Conditional defined benefit—filling the gap between the defined-contribution annuity and the level of retirement income that is regarded as acceptable. The combined effect of both of these options would be to reduce the required tax from the projected 9% to less than 2% of earnings.
The transition path
• PAST：a PAYGO system of defined benefits linked to the final wage and administered by the retiree’s lifetime workplace. The retirement benefits were paid by the worker’s enterprise without any explicit pension fund or accounting reserves.
• NOW：State-owned enterprises must face a more rigorous market test and are not supposed to incur losses. Shift assets to entities responsible for pension benefits, such a shift is economically efficient only if it leads to the best use of those resources among all the politically feasible options.
Gordon White’s conclusion
Welfare reform has proven not only technically complex and economically constrained but also institutionally tangled, socially sensitive and politically charged.