There’s an interesting article in today’s New York Times on China’s pension system. Here’s a snippet from the article:
The bind that China finds itself in takes form in an often-posed question: Can the country grow rich before it grows old? Increasingly, experts here say the answer, which also has huge implications for the global economy, appears doubtful.
In its rush to modernize, China has rebuilt its economy, opening up to foreign investment, privatizing state-owned industries and greatly expanding higher education — 70,000 engineers earn graduate degrees each year, for example.
Under China’s sweeping pro-market reforms, since the 1990s millions of workers have been laid off from money-losing state enterprises. The state’s obligations to these workers for their so-called legacy pensions, together with more recent obligations under the newer, market-oriented retirement system, amount to over $1.5 trillion, according to the World Bank.
“I think that most people have not realized how tough the situation will become,†said Li Shaoguang, director of the Institute of Social Security at the School of Public Administration at Renmin University of China, in Beijing. “We’re already aware that the percentage of old people in our population is large and is growing fast, so in order to pool more people in the system to pay for current retirees, the government is trying to include more migrant workers in the system. This could alleviate pressures now, but it also means that you will have larger pressures to face when the migrant workers grow old.â€
The things to recall about the aging of China’s population are 1) the demographics of China ensure that the population is aging rapidly; 2) there is no universal system of social insurance; 3) the One Child Policy has resulted in a lot fewer young people to support all of those old people; 4) China has neither a sound banking system nor equities system for savings.
I believe that all of those problems are problems that China is capable of coping with but it will be difficult, there is an enormous amount of work to do, and there isn’t a great deal of time to do it in.
My previous posts on this subject are:
A Little Bit of Chinese Demographics
China’s Time Bombs: One More Word on the Pension System
China’s Time Bombs: Gray China
