The Trade War Is Draining China's Social Security System
The Trade War Is Draining China's Social Security System
The effort to reduce the
burden on businesses is narrowing the budget for social security, which is
already small in China.
The trade war with the
United States and the coronavirus epidemic have forced the government to
constantly introduce generous stimulus measures to ease the burden of social
welfare contributions of Chinese companies. But this leads to a smaller
pension pot.
Meanwhile, the social
security cost for fiscal 2020 is forecast to exceed for the first time since
1998, alarming the alarm. This comes at a particularly unfortunate time
for the country's social safety net when a large portion of China's own baby
boomers reach retirement age by 2022.
China offers seven types of
programs for citizens including pensions, health insurance and insurance
covering labor injury, unemployment or maternity. Receipts are collected
in a shared trust fund that disburses payments to beneficiaries.
But overall fund revenue
will fall 4% to 7.73 trillion yuan (US $ 1.09 trillion) according to the 2020
budget approved at the National People's Congress last month, while spending
will increase 10% to 8.23 trillion yuan.
The deficit of nearly 500
billion yuan will cut 5% of the social insurance fund balance to 8.9 trillion
yuan by the end of the year, the first such narrowing since the data was
recorded again in 1998.
China's aging population
has caused interest payments to skyrocket. Social insurance revenues are
derived primarily from contributions from employers and employers, as well as
government subsidies. Although subsidies are expected to grow 12% to a
record 2.16 trillion yuan, the contribution will decrease 9% to 5.24 trillion
yuan.
The decline in
contributions is related to the US-China trade war. To help companies
survive the tariff war, Beijing in May 2019 reduced the highest fee bracket
that corporations pay to 16% of employee salaries, down from 20%. As a
result, the company paid less than 425.2 billion yuan in social welfare
contributions last year.
Similar measures follow the
new coronavirus epidemic that swept the country this year. The government
reduces pensions and contributes to unemployment, especially for small, micro
and medium enterprises. The total amount of 500 billion yuan was wiped out
of social insurance revenue between February and June.
The relief measures are
expected to expire at the end of June, but Prime Minister Li Keqiang announced
an extension until December when he published a government work report last
month.
Meanwhile, the aging of the
Chinese population shows no sign of slowing down. The country experienced
a baby boom after 1962, the last year of the Great Leap Forward campaign that
caused great famine. People born that year will reach 60 years of age by
2022.
More than 20 million people
are born each year from 1962 to 1976, a survey conducted in 2010
showed. That's the equivalent of a mass retirement of no less than 15
years, resulting in an increase in pensions and health care payments.
This year's government
grant for social welfare programs will exceed 70% of defense
spending. Benefit spending is on track to tightening China's treasury,
just like in neighboring Japan.
The central government does
not disclose the prospect of expansion for social insurance financing.
The
Chinese Academy of Social Sciences has published a first estimate of the urban
workers' retirement fund. The state-backed research institute makes a
shocking forecast that stocks will bottom out by 2035.
In the government's work
report, Li announced that he would expand state financial support for health
insurance and increase pensions, regardless of budgetary concerns. Even
China's one-party state is forced to take a political balancing act when it
comes to rights reform.
In order to maintain a
retirement population of nearly 300 million, the Communist Party may need to
consider curbing domestic military and security spending - two areas that
preserve party rule. Such a result could affect the long-term security
balance in Asia, as well as the sustainability of China's current power
structure.
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