Pension crisis looms for China - Political Forum

Sebelius for VP, not Hillary · 06-09-2007, 05:47 AM

The Chinese are a determined and serious people, but I wonder how they will fare with all of these social security problems on top of still being a developing country.

Pension crisis looms for China - International Herald Tribune

Quote:

Pension crisis looms for China

SHANGHAI: When Chen Rui reached 50, the retirement age for women here, she immediately did what millions of people of her generation have begun doing: She scrambled to find a new job.

While second careers are common in the West and are often embraced as a chance to satisfy long-held ambitions, for huge numbers of Chinese city dwellers like Chen, a widow and career accountant, eking out another decade or two of paid work is more a matter of survival.

In this sense, Chen is anything but alone.

The proportion of elderly people is growing faster in China than in any major country, with the number of retirees set to double between 2005 and 2015, when it will reach 200 million. By midcentury, 430 million people — about a third of the population — will be retirees. That increase will place enormous demands on the country's finances and could threaten the underpinnings of the Chinese economy, which has thrived for decades on the cheap labor of hundreds of millions of young, uneducated workers from the countryside.

Changes in China's population structure are taking place hand in hand with changes in the structure of the family. The country's so-called one-child policy, which began in 1980, means that, beginning with the current generation of young adults, couples will face the stark task of caring for four parents through old age. By the same token, the ratio of workers to retired people will decline from about six to one now to about two to one by 2040.

Of course, raising the retirement age from the current 50 to 55 for women and 55 to 60 for men to bring them more in line with international norms would ease a substantial amount of pressure on the pension system. But raising the retirement ages presents another set of problems for the government, social security experts here say.

Last year, for example, 4.13 million young Chinese graduated from universities, and fully 30 percent of them are still unemployed. Unemployment is high among non- university graduates, as well. Prolonging employment for older workers would make this predicament worse, possibly with volatile consequences.

Meanwhile, breaking a lifelong promise and abruptly extending the retirement age would create another large class of malcontents. As a result, the government has been unable to reach a consensus on how to handle the problem, which is leaving people like Chen in an increasingly difficult position. Like most women her age, Chen is the mother of a single child, a legacy of stark population control policies introduced in 1980, which means that with only a skimpy state pension and one child to help her out she must fend for herself in her old age.

"I'm saving money for my daughter's dowry and for myself when I get old," said Chen, who now works in a small trading firm along with several men. "My daughter promised to take care of me after she gets married, but I don't want to burden a young couple. Anyway, it's not easy for two young people to take care of four old parents."

The bind that China finds itself in takes form in an often-posed question: Can the country grow rich before it grows old? Increasingly, experts here say the answer, which also has huge implications for the global economy, appears doubtful. In its rush to modernize, China has rebuilt its economy, opening up to foreign investment, privatizing state- owned industries and greatly expanding higher education — 70,000 engineers earn graduate degrees each year, for example.

Under China's sweeping pro-market reforms, since the 1990s millions of workers have been laid off from money- losing state enterprises. The state's obligations to these workers for their so- called "legacy pensions," together with more recent obligations under the newer, market-oriented retirement system, amount to over $1.5 trillion, according to the World Bank.

"I think that most people have not realized how tough the situation will become," said Li Shaoguang, director of the Institute of Social Security at the School of Public Administration at Renmin University of China, in Beijing. "We're already aware that the percentage of old people in our population is large and is growing fast, so in order to pool more people in the system to pay for current retirees, the government is trying to include more migrant workers in the system. This could alleviate pressures now, but it also means that you will have larger pressures to face when the migrant workers grow old."

By some estimates, at least half a billion mostly rural Chinese are not covered by the state's fragmentary social security system at all. Recognizing a crisis in the making, Beijing began moving a decade ago to revamp a pension system that was a legacy of cradle- to-grave socialism. The new system combined elements of what had existed before — with the fixed contributions of elderly workers in state industries — with individual retirement accounts for those working in the modern economy.

Most troubling to financial experts, the government has used payroll taxes paid by the current generation of workers, who in theory are paying into their individual retirement accounts, to pay pensions for the previous generation. For all of the experts' talk of a looming crisis, many Chinese seem only dimly aware of the country's predicament, and many middle-aged people say they have only belatedly begun to prepare for retirement.

Xiao Zhenya, a 57-year-old materials engineer, began making serious preparations for retirement only in the last few years. Now, with retirement less than three years off, he invests as much as half of his monthly income of about $800 in China's booming but risky stock market. "I figure everything will be O.K. unless you get a major illness," he said. "If that happens to me and I can't take care of myself, I'll just have to end my life."

Luke · 06-09-2007, 11:11 AM

[quote=W.E.B. Du Bois;40940]The Chinese are a determined and serious people, but I wonder how they will fare with all of these social security problems on top of still being a developing country.
[\QUOTE]

Many of the urban residents have retirement pensions, especially if they are working in State Owned Companies. The bankrupted state owned companies release all their employees, not just the retired people. For those who are working in private or foreign companies, they can only rely on the insurance if they have purchased before they retire. Their children also always support them in one way or another. One couple support four old parents, but it is unlikely that four of them all have no retirement plans.

For rural residents, they never had retirement pensions, and they have to rely on agriculture and poultry. They usually have more than one child to support them.