ASIA BRIEFING:PEOPLE IN CHINA are worrying about their old-age pensions. In the official version, the one-child policy has been one of the most successful experiments in social engineering ever carried out, preventing hundreds of millions of births in China which would put untold pressure on the country's precious, scarce natural resources.
However, on the street, aside from fears about the often brutal way the policy is implemented, people are worried about how it has resulted in a shrinking number of young Chinese to replace retiring workers. The policy means the number of working-age Chinese is set to decline by 3.6 million per year beginning in 2014.
China has tough decisions to make. The male/female ratio has become badly skewed because of the one-child policy, and too many retirees must be supported by too few productively employed younger people. However, if China relaxes the policy, it will put serious pressure on its scarce arable land and blighted environment.
Some 123 million Chinese were older than 65 at the end of last year, and the number is expected to rise to 323 million, or more than 23 per cent of the population, by 2050.
A 2011 census counted 181 million citizens over the age of 60. That population is growing fast: by 2015 the greying Chinese will have grown to 221 million, or 16.7 per cent of China’s total. Just last year, China had an additional 5.21 million pensioners, according to official data.
Traditionally, China has a high savings ratio because there has been no social welfare net, and people put money aside for for health insurance and pensions.
The policy of population control has led to a skewed dependency ratio, with one child responsible for the welfare of a number of adult relatives, unlike in other societies where the burden is shared. Right now, 3.5 workers pay the pension benefits of every Chinese retiree, which could fall to as low as two to one by 2035.
There is a growing debate about raising the retirement age too.
Under Chinese law, men can retire at 60, and women in government and state-owned companies can leave at 55. Women in the private sector can start collecting pensions
at 50.
China’s state pension system was set up in the 1990s, and as it stands, is a major irritant to entrepreneurs.
Private sector workers pay 8 per cent of their salary into a government-managed retirement fund, and employers add an additional three per cent. In the public
sector, however, there is no employee contribution, with everything covered by the state.
Local authorities have dipped into pension funds to pay pensions to retirees who began working before the 1990s and didn’t pay into their retirement plans.
Zheng Bingwen, head of the Global Pension Fund Research Centre at the Chinese Academy of Social Sciences (CASS), told local media last week that the gap between the liabilities and assets of China’s pension system expanded to 2.25 trillion yuan (€320 billion) last year, up 25 per cent year on year.
A large number of wage earners won’t be able to withdraw pensions from their individual accounts when they retire in the future, even though the numbers appear to add up, if the gaps are not filled, Mr Zheng said.
This tallies with a recent report by Bank of China and Deutsche Bank that China’s pension system will suffer an 18.3 trillion yuan (€2.33 trillion) gap between assets and liabilities in 2013. If no action is taken, that gap will widen into a 68.2 trillion yuan (€8.67 trillion) deficit by 2033.
A problem is that strict regulations have directed most of China’s pension fund into low-yield bank deposits and debt products.
The government has sought to soothe fears over the pension shortfall. The vice-minister of human resources and social security Hu Xiaoyi said this year that the pension fund was “sufficient on the national level”.
The national pension fund had 1.95 trillion yuan (€250 billion) in its accounts at the end of last year.
