Evaluating the Redistributive Effect of Social Security Programs in China over the Past 30 Years

• Published date: 01 January 2022
• Author: Meng Cai,Jing Xu
• Date: 01 January 2022
• DOI: http://doi.org/10.1111/cwe.12402

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 58–81, Vol. 30, No. 1, 2022

58

*Meng Cai, Associate Professor, School of Economics, Minzu University of China, China. Email: caimeng@

muc.edu.cn; Jing Xu (corresponding author), Associate Professor, International School of Business Finance,

Sun Yat-sen University, China. Email: jing-hi@163.com. This research was supported financially by the

National Social Science Foundation of China (No. 18ZDA080), Humanities and Social Sciences Project from

the Ministry of Education of the People’s Republic of China (Nos. 17JJD790023 and 20YJC790153), and the

National Natural Science Foundation of China (No. 71703188).

Evaluating the Redistributive Effect of Social Security

Programs in China over the Past 30 Years

Meng Cai, Jing Xu*

Abstract

China has improved its social security system in recent decades, with the aim of

achieving universal coverage and improving the equity of income distribution. Based

on data from the fi ve rounds of Chinese Household Income Project surveys from 1988

to 2018, this paper examines the long-term redistributive effects of social security

programs in China. Our results show that social security programs have reduced income

inequality consistently, and the positive redistributive effects have been improving for

the past 30 years. Social security transfers have had an increasingly essential role in

rural areas, especially after 2002 when China started to establish a comprehensive

rural social safety net and expanded the coverage of the social security program. The

redistributive effi ciency of the social security system has also increased recently.

Keywords: income inequality, redistributive effect, redistributive efficiency, social

security transfer

JEL codes: H23, H55, I38

I. Introduction

China has introduced numerous public policies to develop its social security system

since the beginning of the 21st century. With the implementation of several key

programs, such as the basic pension system for rural residents, cash transfers such as the

minimum living standard guarantee (dibao) aimed at low-income groups, and agriculture

production subsidies, the Chinese government has accelerated the establishment of a

social security system with the aim of achieving universal coverage, increasing benefi t

levels, and improving the equity of income distribution. To realize this target, the

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Redistributive Effect of Social Security Programs in China 59

Chinese government has expanded the scale of social security spending consistently in

recent years, with its share of total public expenditures and GDP increasing every year

(Figure 1).1 Today, China has built up a huge social safety net that covers the largest

population in the world.

Figure 1. The size of government social security spending and its share

in the government expenditure and GDP, 1998–2018

Sources: Ministry of Human Resources and Social Security (2014); Ministry of Finance (2015–2018).

Note: Social security spending is in current price.

After the establishment of the dibao program in 1999, the New Rural Pension

Scheme in 2009, and the Urban Residents Pension Scheme in 2011, low-income rural

and urban residents are included in the social security system. The main components of

the social security system have been improved continuousl y and the number of people

covered by China’s social insurance system increased dramatically (Figure 2).

1After the reform of the government revenue and income categories in 2007, government social security

expenditure included the subsectors of spending on social security and employment, health care, and

government-subsidized housing projects. The social insurance fund in China is isolated from general public

expenditure, so we should include social insurance expenditure in calculating the total government social

security spending. Part of the social insurance expenditure comes from public fi nance, so it has already been

included in general public expenditure. To avoid duplicate calculations, we should exclude the subsidies from

public fi nance from the total government social security spending. Total government social security spending

therefore equals the sum of social security spending from general public expenditure and social insurance fund

expenditure, minus subsidies from public fi nance to the social security programs.