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Rural Pension Reform in China: A Critical Analysis

John B. Williamson ^a

Lianquan Fang^b

Esteban Calvo^c

^a,  Department of Sociology, Boston College, Chestnut Hill, MA  02467, USA. Email john.williamson@bc.edu

^b Institute of Latin American Studies, Chinese Academy of Social Sciences, Beijing, China

  Email fanglq@cass.org.cn

^c School of Business and Economics, Universidad Diego Portales, Chile; Department of Epidemiology and Robert N. Butler Columbia Aging Center, Columbia University
Emails esteban.calvo@udp.cl – esteban.calvo@columbia.edu

Abstract

This article provides a critical assessment of the Chinese New Rural Pension System, a scheme that combines a voluntary funded defined contribution pillar with contingent social pension. China has rapidly and dramatically increased rural coverage and has emerged as a model that will potentially influence rural pension policy development in many other developing countries in the years ahead. However, the new scheme is also facing challenges, including the need to maintain its currently high coverage level by finding some new incentives for participation to replace the innovative family-binding incentive that is likely to be less effective in the decades ahead than it is today. Other challenges include the need to substantially increase benefit adequacy while maintaining financial sustainability. Our research is largely based on Chinese government documents, World Bank reports and similar documents from other international organizations such as OECD, United Nations, and  HelpAge International.  

Keywords: rural, pension policy, social security, developing countries, China, Latin America

1.     Introduction

In rural China, as in rural regions of many other developing countries, prior to the mid-20^th century old-age provision had been the responsibility of the family. In China this was true in both rural and urban areas. In 1951, shortly after the founding of the People’s Republic of China, the first public old-age pension provision scheme was introduced. It was designed to cover workers in urban areas, primarily those working in the state owned enterprises (SOEs) that were generally located in urban areas. It was financed by employers with no contributions required from employees. For rural residents provision for old-age continued to be largely the responsibility of the family. However, there was also some additional support from the rural communes (collective farms). Rural residents who were childless were guaranteed a very modest level of support in the form of the “Five Guarantees,” a social assistance program that was covered by the collective that assured at least minimal coverage with respect to food, clothing, housing, medical care, and burial expenses (Wang, Williamson, & Cansoy, 2016). But during the 1980s and the gradual shift from a command to a market economy, the rural communes generally devolved into individual family plots. This resulted in old-age provision becoming again almost entirely the responsibility of the family. During the 1980s and 1990s several other voluntary small scale old-age pension schemes were piloted in some regions of rural China. But the rural population remained largely ignored by government sponsored pension schemes.