China's Future Social Security System: Analysis

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Last updated at: (Beijing Time) Tuesday, December 17, 2002

China's Future Social Security System: Analysis

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"Social security system should be launched socially on a mass low-stratum sustaining basis," said Mr. Chen Qingtai, deputy-director with the Development Research Center under the State Council, at the 1st China Social Security Forum. It demands economic equity and social justice are maintained, the majority's basic rights and interests are protected, sustainable revenue and expenditure and incentive effect on economic growth are given full play to their roles in guaranteeing an overall balance of interests among the people.

A system vital to a market economy

Mr. Chen pointed out that social security is vital to the market operation of an economy. Since China is at the critical stage of industrialization and urbanization coupled with a high economic growth rate, it is highly necessary to build a sound social security system, which, however, has so far remained a bottleneck on the market economy.

Chen gave his own analyses:

First, market exerts its full primary effect on resources allocation.

Second, ownership, industry, and enterprises restructuring keep in pace with that of labor.

Third, when the country is in a rapid process of industrialization, numbers of labor surge into cities, leaving "land security" behind, which will put social stability in peril if no new basic social security established.

And fourth, now China, with a peculiar population structure, will be confronted with a challenge of aging in the coming 20-30 years. Without a sustained social security system, the country will run huge hazards.

Fifth, when unemployment keeps a high rate in cities, unemployment insurances should be established in conformity with national conditions.

And lastly, social stability and fair social play also call for a mature social security system.

With the transformation of economic system, foundation for the existence of conventional security system has been dug. The country is in urgent need of a shift from "enterprises security" or "units security" to social security guaranteeing just distribution and social stability.

Six major factors taken into account

In line with China's current situation and future development, Mr. Chen Qingtai believed that six major factors should be considered when basic goals of social security system are defined.

First, as a populous developing country, China is still at a low level of overall economic development. Thereby, social security has to be at a low basic degree stressing on retirement security.

Second, social security should cover an incentive mechanism conducive to economic growth, such as encouragement of working hard and restructuring of the national economy.

Third, attention should be paid to policy stability and continuity. For instance, due to family planning, China will have to bear a huge pressure of aging next 20-30 years. Thus, a pension system should be conscientiously addressed.

Fourth, social security system, especially social insurance in cities, should fit the trend that rural labors throng into cities.

Fifth, to build a social security system, a task with a distinct operational character in the meantime, should conform to concrete situations, such as specific circumstances, management level and capability, with an eye to facilitating management and operation.

And lastly, the social security system should have its various items coordinated and co-promoted along with corresponding policies instituted.

Characteristics of future social security system

First, the system should have a broad coverage, with security items applying to public as most as possible. For example, the social insurance should be applied to the whole employment population, while the basic life standards security system be intended for all members of the society.

Second, the system should be orientated towards the low-level "basic security".

Third, the system should fulfill the drive for socialization, abolishing completely enterprises security, and meanwhile avoiding a big gap among different regions.

And lastly, the system should strive to achieve sustainability, but not aim to solve temporary conflicts.

Insurance system added to the future social security system

Mr. Chen Qingtai also added, that contained by the conventional security system as well as the pattern of vested interests, establishment of China's new social security system will be impeded.

Under the current basic pension system in urban areas (especially in state or collective-owned enterprises), staff retires at a younger age, only to cause a frequency of replacement and high cash-payment for pension. Hence, such a system not only does not meet the need of aging, but also has given way to vicious circle in some areas.

Besides, the present unemployment insurance system was formulated in imitation of the national unemployment insurance system plus special security system in developed countries. It well copes with specific problems in special condition. However, once faced with a high unemployment rate, it will inevitably land itself in a financial crisis.

In addition, implemented in a small range the basic medical insurance system for urban workers relies heavily on a high payment rate and only guarantee a low cost rather than sound medical conditions. And so recent years have witnessed a deteriorating conflict between revenue and expenditure.

Thereby, Mr. Chen Qingtai suggested that future's social security system comply with low level, broad coverage, socialization and sustainability. In other words, the new social security system should ensure the fundamental rights and interests of the masses, achieve sustainability of revenue & expenditure and produce an incentive effect on economic growth, and strike a balance and maintain the consistency of interests among all social classes.

At the same time, relations with the government and market should be handled in a careful way, because a sound social security system needs the government's leadership as well as the market's cooperation and coordination. In Chen's opinion, a free hand should be given to the market, and intervention from the government lessened, which helps to improve the efficiency and reduce political risks.

In terms of the option of pattern, Mr. Chen held that a new social security system should bear a long-term consideration, supporting and sustaining the national reform and development. If an old system has proved to be incompatible with a country's long-term development goal, it should be replaced. Nonetheless, establishment of a new system should be separated from problems left over the former. As a matter of fact, it is the government who should take the responsibility to resolve the historical problems.

Mr. Chen Qingtai expressed the hope that technological methods will be adopted more often. Take establishment of the pension insurance system for example. The choice of a replacement rate, ceiling of the retirement age, assessment of fund-related management institutions etc are of key significance to a system's sustainability.

By PD Online Staff Zhu Lizhen

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