China’s citizens are getting older, and with decades of managed population growth, the family support system is weak. What is being done to provide security for hundreds of millions of elderly?
Obama has his work cut out for him. Providing health care to 300 million people with an average income of US$47,500? Now that is a daunting task.
Imagine how Hu Jintao must feel.
Three decades of economic opportunity have made China’s citizens healthier and wealthier than ever before. Literacy rates are way up, life expectancy is a respectable 73 years, and hundreds of millions have been lifted out of poverty. Chinese are living longer than ever before. And that may be the problem.
“For thousands of years, filial piety was China’s Medicare, Social Security and long-term care, all woven into a single family value,” notes a 2008 AARP bulletin. But today, as economic advancement leads to more comfortable lives, Chinese families and government are struggling to provide for their rapidly graying population.
The one-child policy, enacted in 1979, has created a number of social consequences for China. While it has slowed growth to a manageable .65%, the country is seeing a widening imbalance between its young and old. In a society where family traditionally provides support for the elderly, shifting demographics are a serious concern.
Elderly people in China, defined as being 60 years of age and over, currently constitute 12% of the national population, or 166 million people. According to Du Peng, Director of the Institute of Gerontology at Renmin University, the number is expected to increase to 400 million by 2050.
“Whether we are talking about 150 million now or 400 million in the future, we need a social security system to guarantee a minimum income level for this population,” Du says.
How will China support this imbalance? Robert Stowe England, author of Aging China: The Demographic Challenge to China’s Economic Prospects, says that the biggest challenge the government faces is how to address the costs of providing the necessary benefits to this group. Because most social security systems, China’s included, depend on the current working population to contribute benefits for the retiring population, it is a problem that the worker to retiree ratio is falling—set to decrease from 20 to 1 to 2.5 to 1 by 2020.
What is the government doing now to address the social security needs of retirees and the elderly? With coastal China far more developed than the western interior, the available options differ by region.
ELDERLY CARE IN URBAN CHINA
For the country’s urban population, Pieter Bottelier, professor of China Studies at Johns Hopkins University notes, “China is way ahead of most large developing countries in developing new social security and safety net systems.” The government mandated a pension plan in the early to mid-1990s, modeled after Singapore’s social security system, in state-owned and private enterprises.
According to England’s book, Aging China, the program was recommended by the World Bank, and was a dual-component system consisting of “individual accounts funded by both the employer and employee.” To make the system more sustainable for its beneficiaries, in 1997 the government supplemented individual accounts with two additional components: a flat rate of 20% of the city’s average wage and a “voluntary employer-sponsored supplementary pension.” This effectively switched the urban pension program to a “three-tiered system.”
But the system is not without its flaws.
“The newly redesigned social system was not a detailed blueprint; it was a general outline,” England writes. “It left a lot of unfinished business, loose ends, loopholes, and daunting tasks to be resolved in the future. The implementation of the reforms varies widely across provinces.”
Many in state enterprises, however, enjoy fewer benefits than did their predecessors 15 years ago.
“Depending on when you worked, there is a huge disparity between what has been promised you and what you would actually get,” England adds during an interview. “Compensation levels were extremely generous before the series of reforms in the 1990s that reduced benefits. Originally the benefit was 80 to 90% of your pre-retirement income, and you also had healthcare.”
The government is reluctant to pursue pension options similar to pre-reform periods because it may be seen as a deterring factor for enterprises looking to invest in China. Enterprises that view the pension program as a cost to doing business find ways to evade participation or compliance. England states that enterprises have to factor in pension benefits as part of their operating costs, which have been as high as 48% of total costs.
“Part of the social security reform is trying to get more of the enterprises into the social security system,” England adds. “Private enterprises, which now are dominant in China, were not part of this social security system originally. They have been coaxed, pressured, and in some cases, forced to be part of it.”
A third concern relates to those who have lost out on pension benefits altogether. Du points out that enterprises that have become privatized or shut down due to economic restructuring have caused many workers to lose their jobs, and effectively any benefits that came with it.
“For the senior workers, say in their 50s or in their late 40s who have lost their jobs, it is not easy to find a new job,” Du notes. “Usually to have pension benefits you must co-pay for some years. That is the problem.”
Du says that the current pension program for employees, “is a good start, but it is not enough financially for them 5, 10 years after retirement.” He says that because China’s economy is developing at such a rapid pace, the value of the pensions decreases accordingly. In order to alleviate this issue, Iris Chi, professor at the USC School of Social Work, says that the central government has mandated an annual increase in pension levels.
“The government is watching the living standard and making sure the increase in pensions are paralleling each other,” Chi explains. “[In cities], the living costs are rising quite fast. The pension system shouldn’t lag behind. It did happen a couple times in the past. The government realized this was a hardship on the seniors, and so they had to compensate by giving them an allowance in order for it not to become a problem.”
Due to a largely incremental strategy characterized by trial and error, Chi says that the government is becoming more experienced in assessing the effectiveness of proposed policies.
PRECARIOUS CONDITIONS IN RURAL CHINA
China’s rural population faces an entirely different set of circumstances. In the country’s interior, there are no formalized pension plans.
Chi argues social security system reform is especially needed in the rural areas.
“Whenever you talk about China, there are rural/urban differences,” Chi says. “Up until now, still 60% of the population live in the rural areas…the major problem is in the rural areas. People [in these areas] do not have a retirement age. They work until they cannot anymore.”
Before any initiatives were taken to address elderly care in rural regions, elderly people relied completely on family members and themselves.
“If you weren’t in a state-owned enterprise and you weren’t in an urban area, there were no social security benefits for you when you retired,” England says. The elderly in these regions still rely heavily on traditional sources of support – family support, savings, and income from their children.
The Current Picture of China’s Pension Plan System
|Type of Locality||Pension Plan Available?||Alternative Support and Current Initiatives|
Supplementary components include 20% of city’s average wage and voluntary employer-supplement 
Minimum Living Standard
Poverty line locally determined
Chi explains a family law that mandates financial assistance from adult children for their parents.
However, the law has not offset customary belief that children ought to provide care for their aging parents. In addition to this is the social stigma of involving outsiders—in this case the authorities—in what is strictly considered a family affair. This deters people from applying for public assistance.
“You know what happens when you take your own kids to court. It damages the relationship even more,” Chi said. “Even though [the children] are willing to give money, they are not willing to come see them or help them in other aspects.”
“At first, the government tried to rely on this law more to find money to support the people,” Chi adds. “However, they also realized that this was not the best solution. Sometimes it is ineffective. It takes a long time to settle a court case like this. That is why the minimum living standard started three, four years ago.”
The minimum living standard is essentially a welfare program. “Even though it doesn’t target all adults, anyone under a certain poverty line may apply for this public assistance option,” Chi points out. “At the beginning the elderly population was very reluctant to apply, but over time they realized this was something they should consider. Now they have become one of the largest recipients of this program…[The minimum living standard] has been built into the national budget. It seems like this [policy] is stable.”
In addition, Du talks about a slowly developing social security system for retirees that the government is attempting to make universal.
“Social security plans for the rural areas started around 15 years ago,” Du highlights. “Two years ago, the government decided to speed up and make the social security system universal….They call this a welfare pension system. There are some old people who used to be farmers and housewives…who never had pensions…Each month, the government gives 200 yuan [to its recipients]. Although it is not a large sum, it is the first type of welfare program that is universal.”
There are also efforts to build social security options at the local government level. Du says, “In the relatively more developed areas—even in towns, counties, and villages—they have their own pension system. They can give some benefits to their retirees.” Such benefits vary by locality.
Initiatives such as the minimum living standard are a basis for more long-term stable social security options in rural China, but of course there is room for improvement. Chi says, “Government officials might hold very different ideas about who is entitled to the program. For instance, in some rural areas, [officials] may ask seniors applying for assistance to work out something with their children first instead of going to government-assisted options. It takes time for people to change their ideas about what family care is.”
RETHINKING POPULATION POLICY
One population-related initiative has been to modify aspects of the one-child policy. Aside from the fact that the one-child policy is not evenly enforced in all areas of China, the government is beginning to relax the policy’s restrictions, especially in the case of Shanghai, where the birth rate has fallen to a low of 0.8, according to England. England explains that the government is encouraging residents in the city to consider having more than one child. If two individuals in a marriage are the only children in their families, they are allowed to have a second child without incurring any penalties.
There is a caveat to this policy change.
“The Chinese government is still kind of afraid that once you open the gates, there will be lots of children,” Chi adds. “If this is a policy you should let people know…But they say, ‘we don’t want to publicize it. We are just going to relax the restrictions.’ The cities with high aging populations, those are the cities where people know about these new policies…like Shanghai.”
Chi has some advice for how the government handles the issue.
“The sooner you can announce [the policy], the better,” Chi says of the municipal-based effort. “When you have two people who came from single-children families, they were spoiled. They don’t even know how to take care of themselves. Now you tell them they have the privilege to have more kids? They probably would say, ‘thank you, no thank you’.”
Bottelier also mentions that in recent reports, the government has considered altogether “abolishing the one-child policy,” although the idea remains far from implementation.
Chi says that retirement support is currently not an immediate concern for people in China—they are still optimistic about the short term. The current retirement age is relatively young – 55 for women and 60 for men. Raising the retirement age would decrease the number of elderly people the government must support, however, the China’s economy requires millions of jobs to be filled each year, not to mention the fact that most of these jobs are physically intense—not work that the average elderly person can take on.
The government itself is beginning to see the potential long-term ramifications of a deficient social security system.
“In the long run, whether this [current] approach can be maintained is…in the minds of the central government,” Chi says. “[Economic growth] can continue in the next 25 years, but what is going to happen after that? There are some lessons China can learn from other countries.”
In any case, whether China’s elderly population will be able to live out their golden years in stability and prosperity remains to be seen. One thing is for certain however—a population of happy retirees is not going to come without a cost to the Chinese government.
Brandy Au is a Ph.D. candidate in Politics and International Relations at the University of Southern California.