Retirement Promises Prove Iffy Under Chinese Communists
China’s retirees may not have the world’s richest pensions, but they have long enjoyed some of its earliest.
By Chinese law, men can retire at 60; women in government and state-owned companies can leave at 55; and women in the private sector can start collecting pensions at 50.
However, over the last year, the bureaucrats in charge of pensions have gone to lengths to telegraph that these thresholds are unsustainable for a country with a declining number of working-age people. At the same time, reform proposals requiring workers to give up years of retirement are politically toxic.
Retirement reform entered the public discourse quite suddenly, on June 6, at a symposium in which officials from China’s Ministry of Human Resources and Social Security announced that reform was “inevitable.” Public reaction was almost universally negative. In a widely cited online poll taken by the People's Daily, the Communist Party mouthpiece, 93 percent of more than 450,000 respondents opposed any change in the retirement age. Coincidentally or not, on June 20 the ministry announced there was “no immediate plan” to raise the age.
Nevertheless, He Seping, director of the Social Security Institute at the ministry, presented a specific reform proposal at a Beijing academic seminar two weeks later. According to the plan he laid out, starting in 2016, on alternating years, a single year would be added to the current retirement age so that by 2045 the uniform retirement age would be 65. Theoretically, at least, the delay would allow more money to be paid into the system to support current retirees and address the worker-retiree imbalance.
According to a report recently issued by Bank of China and Deutsche Bank, China's pension system will suffer a 18.3 trillion yuan ($2.9 trillion) gap between assets and liabilities in 2013. If no action is taken, that gap will widen into a 68.2 trillion yuan deficit by 2033.
Demographics and bad population-control policies are in part to blame. A 2011 census counted 181 million citizens over the age of 60. That population is growing fast: By 2015 the graying population will have grown to 221 million, or 16.7 percent of China’s total. Just last year, China added an additional 5.21 million pensioners, according to the ministry.
That would be troubling enough, but what sets off panic is the shrinking number of young Chinese to replace those retiring workers. In large part due to the restrictions on births produced by the 30-year-old, "one-child" policy, the number of working-age Chinese is set to decline by 3.6 million per year beginning in 2014, according to Zheng Bingwen, head of the Global Pension Fund Research Center at the Chinese Academy of Social Sciences. At that rate, China will have 200 million fewer working-age adults in 2050 than it did in 2010. The results are not going to be pleasant: Today, 3.5 workers pay the pension benefits of every Chinese retiree; by 2035, that ratio could fall as low as two to one.
Writing in mid-June, China’s hyper-nationalist, state-owned Global Times newspaper worried in uncharacteristically self-pitying terms about the looming pension crisis and endorsed raising the retirement age. The threat, from the perspective of the Global Times, is not destitute seniors, however, but rather a loss of social stability. For the Global Times, and the high-ranking Communist Party conservatives who support it, this is step one to becoming another failed European Union:
Delaying the retirement age has led to intense social conflict in several European countries… Some eurozone members are betting on debts and outside aid to keep their social security network going. But for China, with the world's largest population, its social welfare can only be created by its own citizens... If China gets stuck in a debt crisis similar to that engulfing some eurozone members, there will be no union to bail out China.
That’s all true, no doubt, but few Chinese citizens think the troubles with the pension system are only a result of demographics. They know that the pilfering of social security funds has featured in several of China's worst corruption scandals in recent years. And they are aware that the country has a dual-track pension system that gives those in the public sector advantages for which they do not pay.
Private sector workers pay 8 percent of their salary into a government-managed retirement fund, and employers add an additional 3 percent. In the public sector, however, there is no employee contribution. The government covers it all. What's more, pensions for employees of private companies are indexed to inflation while those for government employees are linked to government salaries, which have traditionally risen faster. Pensions are among the reasons civil servant remains one of the most coveted occupations among college graduates.
So far, pension-reform proposals have left untouched China’s dual-trackfunding and pay-out system (though presumably, government workers will be covered by the new retirement ages). China's netizens, ever-suspicious of elite privilege, have noticed. Wang Gunda, a Beijing-based entrepreneur, logged into Sina Weibo to express his irritation with the disproportionate penalty being foisted on the private sector:
Why, when the Chinese government takes on a problem, does it push the difficulties onto private companies and workers? Private enterprises will employ workers until they are 65 and help them pay social security fees, while taxpayers will have to help the government feed civil servants over 65 years old?! The average Chinese person’s lifespan is 70 years, so they have to feed themselves for 5 years after retirement even though they paid the covert ‘tax’ for 41 years! As a taxpayer myself, I have to say: "Go to Hell."
The dual-track system doesn’t just irritate entrepreneurs and microbloggers. On July 3, Youth Daily, the official mouthpiece of the Communist Youth League, the traditional power base of President Hu Jintao, published a scathing critique of the reform proposal by popular essayist Shusheng Xiang. That, in itself, was unusual; high-level government initiatives aren’t often lampooned in important state media. But the essay was particularly notable for its highly personal tone, quite likely a product of recent conflicts between the Youth Daily and the nationalist Global Times.
It said, “Though the delayed retirement proposal was opposed by the public, some who don’t need to pay social security themselves still advocate delayed retirement." The piece continued, "If the policy designers can’t give up their own interests, then the people may ask: 'Why do we have to always be the ones to suffer?'”
China’s conservatives don’t have to answer that question if they don’t want to. But their silence, like their proposed reform, will accomplish the same result: the ever-widening divide between those who run the Communist Party and those whose lives are dictated by it.
(Adam Minter, the Shanghai correspondent for the World View blog, is writing a book on the global recycling industry. The opinions expressed are his own.)
To contact the author of this blog post: Adam Minter at ShanghaiScrap@gmail.com.
To contact the editor of this blog post: Lisa Beyer at email@example.com