Pension reform in China [Elektronische Ressource] : challenges and answers / vorgelegt von Chuanchao Wang

Wang

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Fachbereich Wirtschaftswissenschaft Pension Reform in China: Challenges and Answers Disserstationzur Erlangung der Doktorwürde durch den Promotionsausschuss Dr. rer. plo. der Universität Bremen vorgelegt von Chuanchao Wang Bremen, 12.12.2008 GutachterProf. Dr. Jörg Huffschmid Prof. Dr. Rudolf Hickel 1SUMMARY China is currently in the process of developing the largest pension system in the world and it is doing this in the context of profound economic reform and demographic transformation. The central government has followed a step-by-step approach to set up a system that is capable of accommodating a rapidly aging society within a fast growing, but still largely underdeveloped economy. This dissertation analyses how far the process of building the public old age security system had proceeded and to what degree it has so far achieved its primary goal. Based on assessment on the implementation issues of the current system, this dissertation focuses on the major challenges confronting the system, aiming at finding where the pension reform is going in China.Since the crucial re-design of the pension system from an enterprise-based pure pay-as-you-go scheme to a partly privatized funded scheme in 1997, the government has laid out the framework to build up a national unified system, supported by the founding of NSSF (National Social Security Fund) as a fund of last resort. After years of experiment programs, the current system is further specified.

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• Publié par: universitat_bremen
• Publié le: 01 janvier 2008
• Nombre de lectures: 52
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

1

rtschaftswissenschaft iFachbereich W

Pension Reform in China:

Answers Challenges and

Disserstation

zur Erlangung der Doktorwürde

durch den

. plo. . rerPromotionsausschuss Dr

der Universität Bremen

gelegt von vor

ng aChuanchao W

Bremen, 12.12.2008

Gutachter

fschmid g Huf. JörProf. Dr

. Rudolf Hickel Prof. Dr

SUMMARY

in the world and it is stemy process of developing the largest pension sChina is currently in thedoing thcentral government has followed a step-byis in the context of profound econom-step appric reform and demoach to set up a systemographic transform that is capable of ation. The
accoeconomymmodati. This dissertationg a rapidly n analyaging society within a fses how far the process of building the publast growing, but still largely underdeveloped ic old age security
system had proceeded and to what degree it has so far achieved its primary goal. Based on
assessment on the implementation issues of the current system, this dissertation focuses on the
major challenges confronting the system, aiming at finding where the pension reform is going in
China.

Since the crucial re-design of the pension system from an enterprise-based pure pay-as-you-go
scheme to a partly privatized funded scheme in 1997, the government has laid out the framework
to build up a national unified system, supported by the founding of NSSF (National Social
Security Fund) as a fund of last resort. After years of experiment programs, the current system is
further specified. Despite these significant reforms, the current system is still facing profound
challenges: The coverage of the system is still limited due to the lack of incentive schemes; the
rural population remains outside the national pension system and the majority of the population
would remain dependent on the traditional family support to provide old age support for many
years to come; the system is decentralized, characterized by fragmentation and intransparancy;
central budgetary subsidy is still needed to fill the funding pap. Thus, China’s pension system is in
urgent need of reform to create a more sustainable and ultimately a truly national pension system.

Yet the rapid economic development and productivity gains since the economic reform in 1978, as
well as the demographic window due to the declining overall dependency ratio until around 2013
provide favorable opportunities for China to address the challenges facing the system. Extending
coverage through improved compliance by employees and companies and improving fund
investment by strengthening the financial market development and regulation as well as the
ent towards the NSSF are believed to be crucial to create financial mmitmnancial cong ficontinuiand institutional basis that would cushion the impacts of a rapidly ageing society as China.

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BLE OFATCONTENTS

tion Introduc1.2.The aging society and pension “crisis“
2.1.What is in essence the pension problem?
2.2.The debate on pension „crisis“
2.3.The solution to pension “crisis”
2.4.The debate between PAYG and FF pension scheme
2.5.The effects of FF pension scheme
2.5.1.Would a FF scheme increase savings and growth?
2.5.2.Would an enhanced capital market result in economic efficiency?
2.5.3.Would a FF scheme bring about more benefits to the pensioners?
tion ion privatizapensWinners and losers of 2.6.3.The socio-economic and demographic background
3.1.Rapid economic growth but still poor in terms of income per capita
3.2.High productivity gains but not sustainable
3.3.High national and household savings
3.4.Strong investment but weak consumption in GDP components
3.5.High foreign exchange reserves and current account surplus
3.6.Underdeveloped and risky capital market
3.7.Rising employment participation accompanied by high urban unemployment
3.8.Low labor costs despite the rapidly rising average wages
3.9.Rapid rural-urban migration and accelerated urbanization’s process
is ageing rapidly before getting rich China 3.10.3.11.Deteriorated old-age dependency ratio partly due to early retirement
3.12.Demographic „window of opportunity“ until 2013
4.How old age security system has developed in China
4.1.State labor insurance system first established in 1951
4.2.Shift to enterprise-based system during the Cultural Revolution (1966-1976)
4.3.Amendments encouraging early retirement in 1978
4.4.Individual contributions added to municipal pooling in 1986
4.5.Implementation issues of the municipal pooling in the late 1980s
4.6.First attempt to move toward a multi-pillar-system in 1991
4.7.Coexistence of two initiatives for the first pillar in 1995 reform
4.8.Efforts to extend pension coverage in 1990s
in 1997 pts to unify the pension systemAttem4.9.4.10.Launching experiment programs since 2001
4.11.Founding of NSSF as a fund of last resort“ in 2000
4.12.Establishing the current urban pension system since 2006
5.Implementation issues and structural challenges
5.1.Pension coverage is still low despite of increased system participants
5.2.Pension surpluses were accumulated with budgetary subsidies
5.3.Pension contributors have increased but dependency ratio has declined
5.4.Pension benefits have increased in absolute value but declined as ratios to wage and GDP

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5.5.Pension pooling has not yet been instituted at provincial level
5.6.NSSF assets have been accumulated with relatively low returns on investment
5.7.Individual accounts are empty and notional in many provinces
e ies continue to increasBudgetary subsidiar5.8.5.9.Contributions from the current system are used to finance the transition
6.Pension reform in Latin America: Lessons for China
6.1.Full privatization: in case of Chilean pension reform
6.2.The mixed system: in case of Argentinean pension reform
6.3.Assessment on the pension reform in Latin America
6.3.1.Impacts on national savings
6.3.2.Impacts on capital market development
6.3.3.Impacts on investment rate of return
6.3.4.Impacts on pension system efficiency
6.3.5.Impacts on pension coverage
6.4.What can China learn from the experience of Latin America?
6.4.1.The public component of the pension system is indispensable
6.4.2.Social security privatization might trigger financial crisis
aggravates inequitymPrivatized pension syste6.4.3.6.4.4.Government regulations are needed to control risks
onclusion C6.4.5.7.Where is pension reform going in China: issues and options
options The reform7.1.7.2.Lowering wage replacement rates
gending pension coveraExte7.3.7.4.Raising contribution rates
7.5.Improving investment rate of return
ent agemRaising retire7.6.onclusion C7.7.8.Policy recommendations
8.1.Converting the implicit pension debt into explicit
8.2.Unifying the fragmented system
8.3.Strengthening governance of the pension funds
Conclusions 9.

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LIST OF TABLES

Table 1: Demographic effects on the share of state pensions in GDP and the financing burden in
es, 1984-2040 selected countriTable 2: Development of an initial total income of 1000
Table 3: Development of non-pensioners income after a demographic shift
Table 4: Increase in non-pensioners income after a demographic shift in %
Table 5: A comparison between PAYG and FF pension scheme
Table 6: General economic data on China
Table 7: Selected economic and productivity indicators for United States, China and India: 1995–2004
Table 8: Saving rates and saving Distributions in China in %, 1992-2002
Table 9: Profits/losses of foreign exchange reserve accumulation in China (in billion Yuan).
Table 10: Aggregate employment growth (in per cent per annum), 1990-2002
Table 11: Unit Labor Cost by Country: Comparison with U.S. and other selected countries
Table 12: Demographic statistics of China, 1960-2003
Table 13: A comparison of retirement age, eligibility and replacement rate, 1951-1978
Table 14: pensioners, pension expenditure and dependency ratio in China, 1978-1988
Table 15: System dependency ratio for China’s urban public pension (1990-2004)
Table 16: Structure of 1997 pension reform
Table 17: Statistical summary of Chinese National Social Security Fund, 2000-04, bn Yuan and %
Table 18: Contributions and benefits under the three pillar system
Table 19: Balance of China’s basic pension system using pension payments instead of pension
1990-2003 expenditure, Table 20: Social security characteristics and subsidies, by province, 1999 and 2005
Table 21: Pre-1980 Old-Age System Revenues and Expenditures in Chile: 1974-1980
Table 22: Pension System Contribution Patterns in Chile: 1975-80
Table 23: A comparison of contribution rates for the social security pension between selected countries,
0420Table 24: Asset returns in China in %, 1993-2004
Table 25: Output growth and employment in China, 1990-2002

FIGURES: OFLIST

Figure 1: GDP components in China, 1952-2005
Figure 2: Comparing investment and capital income in China, 1993-2003
Figure 3: Total market capitalization as share of GDP in China, 1995-2007
Figure 4: Composite index of Shanghai stock market
Figure 5: Urban employment and labor participation rate in China, 1986-2004
Figure 6: Average monthly wages in urban areas, 1978-2006
Figure 7: Urbanization rate in China, 1978-2006
Figur