Life support


Reforms needed to develop a multi-tiered social security system

Since the launch of reform and opening-up over four decades ago, China has transformed from a planned economy into a socialist market economy. Along with that significant change, the past years have seen Chinese society develop into an industrial and service society from an agricultural one. In the process, besides the remarkable economic performance that has been recognized worldwide, the country has also maintained overall social stability. This is to a large part due to the country's social security system.

China has built the world's largest social security network. According to the Ministry of Human Resources and Social Security, more than 942 million people were covered by pension system by the end of 2018, 196 million by unemployment insurance, 238 million by work-related injury insurance and 1,34 million by medical insurance.

Over the four decades, the Chinese government has put in place a social security system suitable to the country's current economic conditions, which has been gradually established and constantly progressing.

But at the same time, the social security system needs to overcome several pressing challenges during the coming five years.

The system is faced with ballooning costs from the country's rapidly aging population. By the end of 2018, the number of people aged over 60 had reached 249 million, accounting for 17.9 percent of the total. Those aged over 65 accounted for 11.4 percent, while the population aged 15 and below was 238 million. The dependency ratio of people covered by endowment insurance for the urban working group was 2.87:1 five years ago, but decreased to 2.53:1 by the end of 2019. The aging population is putting pressure on the pension and medical insurance funds.

Moreover, the government should fix the current social security network. For example, new business forms should be taken into consideration when formulating a policy to provide support for those working in the gig economy.

Besides, the fairness of the social security system needs to be enhanced, and it is urgent to accelerate the system's progress so that its coverage is more extensive, and encompasses various occupation and business forms. Different from the basic pension and medical insurance system, the development of enterprise annuities and supplementary medical insurance lags behind, as well as commercial insurance, resulting in a great financial burden being placed on the government. By the end of 2019, 25.48 million people were participating in enterprise annuity plans, accounting for only 6.7 percent of the population participating in the basic pension for enterprise employees nationwide, and about 1.8 million people had received enterprise annuities, accounting for only 1.7 percent of retirees.

China's economic transformation has also posed new challenges to the social security system. After 30 years of rapid economic growth, China has increasingly emphasized high-quality development. Considering the needs of businesses, especially small and medium-sized companies, in the process, the government has learned from the experience of developed countries and reduced their required social insurance payments for several years. It has also increased unemployment insurance to support retraining and expand employment. In response to the COVID-19 pandemic, various taxes and fees, including social security contributions, have been further reduced. So the social security system has to find a solution for a new issue-how to give full play to the system in dealing with economic fluctuations and balance insurance in the medium and long term.

In addition, the social security system has not fully met the needs of diversified employment under the current market economy. For instance, driven by advanced internet technologies, employees, such as deliverymen and ride-hailing drivers, work without a fixed workplace or working hours, and do not earn a stable income. That means they cannot meet the requirement for work-related injury insurance and unemployment insurance.

Therefore, to develop a multi-tiered social security system in the 14th Five-Year Plan (2021-25) period, the government should deepen reform in the following areas.

Besides the economic miracle in the past years, China has met some new problems, among which the gap in income distribution is prominent.

Therefore, the government should accelerate the overall planning of the old-age pension to promote the flow of human resources in a reasonable manner. The difference in social security policies between urban and rural residents and various groups should be gradually narrowed.

The social security and welfare system should put more focus on children, including setting up a child allowance system by increasing government input and assisting the treatment of serious diseases with standardized management. At the same time, social and charitable forces can be encouraged to participate with guardians fulfilling their responsibilities. The left-behind children, children of migrant workers and children in urban low-income families are the key groups.

The social security system should take advantage of new technologies that can help establish a network for management and services with convenience, safety and high efficiency, as those technologies can improve the transparency of social security payment, distribution and other links.

The author is head of the China Institute for Income Distribution at Beijing Normal University and director of the Academic Committee of the China Society of Economic Reform. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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