Comment on “The Social Protection System in Ageing China”

• Published date: 01 July 2015
• DOI: http://doi.org/10.1111/aepr.12104
• Date: 01 July 2015
• Author: Yiping Huang

Comment on “The Social Protection System

in Ageing China”

Yiping HUANG†

Peking University

JEL codes: J26, H53, H55

China used to have a state- or enterprise-sponsored social protection system under the

central planning regime. By the mid-1990s, however, it became increasingly clear that

such an approach was no longer sustainable. Many enterprises had more retirees than

current employees on their payrolls. This situation deteriorated further as tens of mil-

lions of workers were laid off in the late 1990s. The government then decided to establish

a new, more sustainable social protection system.

The central idea of the new social protection system is to make it self-sustaining

through savings by employees, enterprises, and the government. The old approach of

social protection made no prior saving, as all social burdens were covered by current

revenue. In addition, the old system discriminated against rural residents.

Cai and Du (2015) offer a very informative review of the evolution of social protec-

tion in China, particularly its progress and challenges. The new social protection system

consists of three pillars – pensions, medical care, and social assistance. Perhaps the most

impressive progress is that all these protection measures reach a substantial proportion

of rural residents.

But the evolving new social protection system still faces serious challenges on a

number of fronts. The biggest challenge is the ageing of the Chinese population. In 2013,

people aged 60 or more already accounted for 14.9% of the total population. This may

rise to 16% in 2020.

The second challenge is the funding problem. For instance, in 2013, about 322

million urban residents participated in the urban worker basic pension program, which

was started in 1997, with about 80 million retirees, or roughly one quarter of the total,

already having started to receive benefits from the program. Incoming revenues are

simply not sufficient to cover payouts by the program.

The third challenge is the rural–urban divide of social protection. Protection for

rural residents is still much less than that for urban residents, which also creates difficul-

ties for the new wave of urbanization. The household registration system is now a major

obstacle for urbanization. Removal of the rural–urban divide, however, could have sig-

nificant fiscal implications.

Cai and Du (2015) correctly argue that, with comprehensive coverage, China needs

to improve the social protection system to deal with rapid ageing and the integration of

†Correspondence: Yiping Huang, 5Yiheyuan Road, Haidian District, Beijing 100871, China. Email:

yhuang@nsd.pku.edu.cn

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doi: 10.1111/aepr.12104 Asian Economic Policy Review (2015) 10, 271–272

© 2015 Japan Center for Economic Research 271