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Pension fund faces mounting shortfall

By Wang Fei’er (Global Times)

08:30, July 24, 2012

The gap between the liabilities and assets of China's pension system expanded to 2.25 trillion yuan ($352.27 billion) last year, up 25 percent year-on-year, local media quoted Zheng Bingwen, director of the Center of International Social Security Studies at the Chinese Academy of Social Sciences (CASS), as saying Monday.

The current deficit is primarily attributable to debts passed on from previous years when the country's pension system wasn't well established and lacked firm support from the government, said Zhang Zhanxin, vice director of the Institute of Population and Labor Economics at the CASS.

Although the country launched a nationwide pension system in 1991, it didn't push forward stringent regulations to oversee its administration until 1997, said Zhang.

Only a fraction of the people who worked between 1991 and 1997 contributed to China's pension fund, which left the system underfunded, said Zhang, who offered figures to the Global Times to show that even in 1997, only 86 million people, or less than half of the country's work force at that time, paid into the pension fund.

Under these circumstances, the country has no choice but to hand over most of the pension contributions it now collects from workers to retirees, which leaves little leftover for investment, Zhang said.

Making matters worse, strict regulations have directed most of China's pension fund into low-yield bank deposits and debt products, said Zhang.

Wang Jianmao, a professor of economics from China Europe International Business School, also expressed concern that the shortfall would become more serious as the country's elderly population increases and private firms look for ways to evade paying into the social security system on behalf of their staff.

The country's one-child policy has slowly been eroding the labor pool since the early 2000's and has obviously reduced the number of workers contributing financially to China's retirees, Wang said.

Also, as companies in China shoulder a growing proportion of the nation's social security burden, private firms can be expected to circumvent pension regulations as slowing economic growth reduces their revenues, Wang said.

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