Pension Reform in China: Progress and Prospects – Felix Salditt, Peter Whiteford and Willem Adema

From OECD website:

China is currently in the process of building the largest pension system in the world, and it is doing this at a time of unparalleled economic and demographic transition. The 11th five-year plan (2006-2011) of the government has put the creation of a “harmonious society” as the ultimate goal of all its actions and a functioning old age insurance scheme seems essential to reach this goal.

In a characteristic mix of experimenting and learning-by-doing, China has followed a step-by-step approach to develop a system that can accommodate a rapidly aging society within a rapidly growing, but still largely underdeveloped economy. But in the transition from a planned towards a “socialist market” economy the complex interactions between numerous challenges such as the urban-rural divide, growing inequality and the ongoing reform of formerly State-owned enterprises make an incremental approach increasingly difficult. This paper therefore analyses how far the process of creating a national old age insurance system had proceeded by the end of 2006. It provides a detailed description of this system and an assessment of to what degree it has so far achieved “its primary goal of social security for more people”

The paper is structured as follows. First, the social and economic environment relevant to the Chinese pension system is described. The second section describes the historical development of the old age insurance system since the 1950s. The third section provides an analysis of current pension arrangements. Trends in spending and recipient numbers are then examined to determine the scope of the current pension system. This is followed by a discussion of how the Chinese system compares to those in other countries and other regions of the world. The paper concludes with an assessment of the major challenges facing the Chinese system in coming years. [Full Text]

See also Pension Reform in China: The Need for a New Approach, a new IMF working paper written by Steven Dunaway and Vivek Arora.

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