A large workforce is critical for a pay-as-you-go system, but China is facing a larger aging population at the moment — and the country’s now-defunct one-child policy is partly to blame.
For nearly 30 years, China limited families from having more than one child, in an attempt to slow the country’s population growth rate. But the regulation is now taking a toll on its government-backed pension. China, like the U.S., has a public benefit program that relies on tax revenue from the workforce, and having so many more older residents than younger workers has become a burden to the system — one that already had trouble paying out its benefits.
The country increased the limit to two children in 2016, though the effects of that increase won’t be felt for years to come. The workforce will continue to decline into 2030, and then begin to tick upward thereafter by the higher birthrate from the new two-child policy, according to a 2018 report published in the Lancet, a medical journal.
Along with fewer people in the workforce, China also struggles with citizens living longer — a blessing, except where the pension system is concerned. The one-child policy led to an imbalance in the number of those aging, many of whom may find themselves in poverty. Older Chinese live in poverty at higher rates than the rest of the globe. The rate of people 60 and older living in poverty in urban areas of China is 4.6%, compared with an average 3.4% elsewhere, but the rate for those living in poverty in rural areas is 22.3%, compared with the global average of 7.8%, according to HelpAge International, a London-based nongovernmental organization focused on elderly issues.
China is also in the midst of pension reform. The country began expanding pension coverage in 2003, in part to assist elderly residents in rural areas who are rarely covered by the program. The basic principles of China’s system include employers and employees both making contributions to pensions, medical and unemployment funds, and having local governments manage insurance funds, according to the China Labour Bulletin (CLB). Under the reform, social insurance benefits are expected to follow workers wherever they go.
Still, even with these new provisions, many workers may eventually retire with little or no benefits, and the country is moving toward a system that relies heavily on individual contributions, the CLB said. “They’re IOUs — not a real pre-funded system — and the Chinese are very upfront about this,” said Tim Kochis, chief executive officer of consulting firm Kochis Global and vice chair of the board of the Asia Foundation, an international nonprofit committed to improving the lives of people in developing Asian countries. “The economics of it don’t work.”
Not only did the policy affect the efficiency of the country’s pension, but it has also put extra pressure on young individuals, who are expected to care for themselves, their parents and in some cases, their grandparents, too. Many Chinese citizens traditionally care for their elderly family members, physically and financially. “You have an inverted pyramid,” Kochis said. “They’ve set themselves up for a serious problem, from a cultural expectation standpoint.”
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