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  1. 1. The Reform and Development of Social Security System in China PRC 1 Professor Tan zhonghe Chinese governments pay high attention to the construction of socialsecurity system. Since 1980s, with the fast development of Chineseeconomy, and adapted to the needs of market-oriented system reform,China reforms traditional social security system. Then, the social securitysystem in China has achieved remarkable success in institutions building,improving mechanisms and structure, expanding coverage, raisingtreatment level, and promoting the opportunity of everyone’s acquiringsocial security fairly and equally. By the end of 2011, the goals of socialsecurity development had been mainly accomplished, which is “makingsocial insurance, social assistance and social welfare as foundations, andbasic old-age pension, basic medical insurance and minimum livingstandard security as key points.” 1. Basic Situation 1.1 The development process of social security system in China Starting from the founding of New China, the social security systemChina has undergone the period of growing out of nothing, broadening 1 Professor Tan zhonghe,National Social Security Institute, Ministry of Human Resourcesand Social Security of China PRC. Address: Room 1205, No.17 street West Huixin, Changyang District,Beijing,china,PRC ZIP:100029 1
  2. 2. coverage from urban to rural, from workers to all other residents in urbanand rural areas. It can be divided into three phases in this 60 years. 1.1.1 The Phase of Forming Labor Insurance From the initial stage of New China to the beginning of Reformingand Opening-up, for adapting the needs of planning economy system, thepolicies of low-pay, high employment rate, high subsidy and extensivewelfare had been applied. Urban citizens were taken all responsibilitiesby the government and enterprises in employment, housing, pension,Medicare, and enrolling of children nurseries and schooling. In rural areas,farmers depend on their land and provided the aged in their families. Thefive guarantees families (the aged, the infirm, the old,widows andorphans) were guaranteed by the rural collectiveness. In add, thegovernment guaranteed urban families to gain certain necessities by theway of “low price, implicit subsidy and allotment”. At that time socialbackground, the social security system played a positive role instabilizing the society. However, the dual problems of identitydiscrimination and equalitarianism were brought about, which is that theguaranteed subjects were mainly the people employed in public economyorganizations, and that the allocating methods were used by the rule ofequalitarianism mess. 2
  3. 3. 1.1.2 The Phase of Focusing on the Reform of Social Insurance From the initial stage of Reforming and Opening up to the year of2002, when the 16th National Congress of Communist Party was held,surrounding the reform of state-owned enterprises and economy systemtransition, China has explored the construction of social security systemwhich sharing the responsibilities among the state, enterprises andindividuals, according to the requirement of socialist market economysystem. First of all, public old-age pension for workers in urban enterprises.In this phase, China has established the public old-age pension whichinstitutional model is the combination of “social pool”fund and “personalaccounts”. Both the employers and workers have the responsibility ofpaying old-age pension contribution. The benefit level is related to thecontribution period. Thus, the incentive and constraint mechanism of“pay more, get more” is initially established. Secondly, unemployment insurance. The unemployment insuranceof workers in urban enterprises was firstly built in 1986, at the time ofwhich called the “unemployment” as “waiting for employment” instead.In 1999, the State Council issued “Regulations on UnemploymentInsurance”, which established the dual functions of unemploymentinsurance of guarantying the minimum living standard and improvingemployment. 3
  4. 4. Thirdly, basic medical insurance for workers in urban enterprises.China started the pilot reform of the institutional pattern of “social pool”fund and “personal accounts” in certain cities in 1994. Then, in 1998, theState Council issued decisions, which set the policies, institutions andmeasures of workers’ basic medical insurance of workers in urbanenterprises. The reform of medical insurance of workers in urbanenterprises was fully activated. Meanwhile, the institutions of work injury insurance, maternityinsurance, minimum living standard security system for urban residentsand so on were also get development and improvement. However, in thisperiod, the construction of social security system in China was mainlydeveloped to take city as a center, and to take occupational workers as akey point. So the social security for the rural and the poor was notcomprehensively designed and considered. 1.1.3 The Phase of Institutional Innovation Characterized byBalancing Urban and Rural Areas Since the 16th National Congress of Communist Party(November ,2012)speeding up the establishment of social security system which willcover urban and rural residents has been proposed . Social security wasbrought to an unprecedented strategy altitude. It has gone to the newphase of balancing urban and rural development and achieving complete 4
  5. 5. coverage. In 2003, “Suggestions on Build Newly Rural CooperativeMedical Institution” was put into effect. It exerted itself to solve thehealth problems of rural residents. In this system, the financing ofgovernment accounts for 80%. In 2007, “The Guidance on Carrying outPilot Reform of Basic Medical Insurance for Urban Residents” was putinto effect, which covered urban residents who are not employed. In 2007,“The Minimum Living Standard Security System for Rural Areas” wasput into effect which made both the urban and rural residents beingcovered by the minimum living standard security system. It was decidedto implement the pilot reform of the old-age pension for workers in publicinstitutions in some provinces in 2009, and the public old-age pension forurban residents in 2011 1.2 Current Situation Now, the social security system in China is comprised of 6 items,which are social insurance, social assistance, social welfare, and socialpreferential treatment, housing security, charity and commercialinsurance. It can be further divided into 25 sub-items. 1.2.1 Social Insurance Being as the core of social security system, social insurance iscomprised of basic old-age pension, unemployment insurance, medical 5
  6. 6. insurance, work injury insurance and maternity insurance. Thecomplementary insurance concludes complementary old-age pension andcomplementary medical insurance. Basic old-age pension is comprised of public old-age pension forworkers in urban enterprises, newly public old old-age pension for ruralresidents and public old-age pension for urban residents. Workers in allkinds of urban enterprises, individual business households, flexibleemployed persons and foreigners employed in China are covered bypublic old-age pension for workers in urban enterprises . Its institutionmodel is the combination of “social pool” fund and “personal accounts”.Both the employers and the workers should undertake the responsibilityof contribution, and the rate is 20% and 8% respectively.. The individualbusiness households, and flexible employed persons who participate thissystem should contribute 20% according to the local employee’s averagewage level last year and 8% of their contribution is booked into personalaccount. Insured workers who reach the mandatory retirement ages (60for male workers, 55 for female cadre, 50 for female workers, and 5 yearsearly for special professions), pay the contribution for 15 years, and fulfillretirement procedures, could receive public old-age pension benefitmonthly. The financing resources of newly public old-age pension for ruralresidents and public old-age pension for urban residents are individual 6
  7. 7. contribution, collectivity assistance and government subsidy. The urbanand rural residents who pay the contribution for 15 years, and reach 60years old, could receive benefits. The pension is comprised of nationalbasic pension and individual account. By 2012, it will achieve completecoverage. Basic medical insurance is comprised of basic medical insurance forworkers in urban enterprises, newly rural cooperative medical insuranceand basic medical insurance for urban residents. All workers are coveredby the basic medical insurance for workers in urban enterprises, whichinclude workers and retirees in all kinds of organizations and privatebusiness, flexible employed workers and peasant-workers. Its institutionalmodel is exercised by “social pool” fund and “personal accounts”. The“social pool” fund is mainly used in the payment of hospitalization(wholesale) costs and arranged by the Social Security AdministrationDepartment. The “personal accounts” is mainly used to pay outpatient(small account) costs. The insurance is paid by employers and employeesjointly. People who are not covered by basic medical insurance for workersin urban enterprises could join the basic medical insurance for urbanresidents voluntarily, which contain the primary and secondary schoolstudents (including vocational senior school, technical secondary schooland vocational school students), children and other residents who are not 7
  8. 8. employed. This sub-item is comprehensively arranged for seriousdiseases. Its financing resources are mainly from family contribution,appropriate subsidies from governments and the assistance by theemployer for the contribution of family members of his workers ifpossible. The insurance fund is mainly used to pay the hospitalized andoutpatient serious diseases costs. Rural residents are covered by newly rural cooperative medicalinsurance. Peasants could join this insurance voluntarily in the unit offamily. It is comprehensively arranged for serious diseases by mutualassistance. The financing resources are personal contribution, collectivityassistance and government subsidy. The way of compensation is mainlydivided into two kinds. In the first kind, the compensation is mainly usedfor hospitalization costs, and the rest is used for outpatient costs. In thesecond kind, the compensation is only used for hospitalization costs andsome chronic disease outpatient costs. The pattern of compensation isbasically the same as the basic medical insurance for workers in urbanenterprises. All kinds of enterprises and individual business households hiringemployees are covered by work injury insurance. The institutional patternof work injury insurance is “social pool” and pay-as-you-go, managedand administrated by local governments. The employers shouldcontribute work injury insurance on time. The employees do not need to 8
  9. 9. contribute. The benefits mainly include work injury medical costreimbursement, permanent disability subsidy, nursing care, installingsupplement appliance, funeral subsidy, supporting the bereaved familiesand one-off work death grants. Urban enterprises and their employees are covered by maternityinsurance. The institutional pattern is “social pool” and pay-as-you-go,managed and administrated by local governments. The enterprisecontributes according to certain proportion, and the employee does notneed to contribute. The benefits mainly include maternity allowance infemale employees’ maternity leave, the examination, delivering,operation, hospitalization, medicine costs of maternity, and the medicalfee and other allowances caused by maternity after leaving hospital. Many kinds of enterprises including state-owned enterprises, urbancollective enterprises, foreign investment enterprises, urban privateenterprises and other urban enterprises, public organizations and theiremployees are covered by unemployment insurance. The institutionalpattern is “social pool” and pay-as-you-go, managed and administrated bylocal governments. The insured enterprises and employees contribute 2%and 1% of employee’s salary respectively. The employees could getunemployment insurance benefits when they meet the followingconditions. First, the employee and his employer have contribute for 1year according to the rules. Second, the employment is not broken off by 9
  10. 10. the employee’s desire. Third, the employee has already registeredunemployment, and has the desire to get a job. The benefits mainlyinclude unemployment insurance fund, medical grants, and funeral grants,supporting the bereaved families, occupation training and introducingsubsidy. The period of receiving unemployment insurance benefits isrelated to contribution period, and the longest period for receiving shouldnot be over 24 months. By the end of 2011, the coverage of public old-age pension hasexpanded rapidly. Public old-age pension for workers in urban enterpriseshad covered all the counties nationwide. Newly public old old-agepension for rural residents had covered 81.5% counties. Public old-agepension for urban residents had covered 75.3% counties, and the insuredpopulation amount to 622 million, increasing 2.86 times than that in 2005.In 683 counties, public old-age pension for urban and rural residents werecombined to implement. Basic health insurance covering nationwidecame true. The institution system of basic medical insurance for workersin urban enterprises, newly rural cooperative medical insurance and basicmedical insurance for urban residents had covered all counties nationwide.The insured population had reached over 1.3 billion, increased 2.77 timesthan that in 2005. In 189 counties, the basic medical insurance for urbanand rural residents were combined to implement. The unemployment,work injury and maternity insurances synchronized to implement with 10
  11. 11. public old-age pension and basic medical insurance for workers in urbanenterprises. The insured population reached 142 million, 170 million and122 million respectively. 1.2.2 Social Assistance The object of social assistance in China is to gurantee the minimumliving standard for the low income population. The financing is allundertaken by public finance. It can be divided into three classes. Thefirst class is usual assistance, such as minimum living standard securitysystem in urban and rural and the assistance institution for rural “fiveguarantees”. The second class is emergency assistance, such as disasterassistance. The third class is temporal assistance, such as medicalassistance, assistance for urban vagrants and beggars and so on. By the end of 2011, the objective population of minimum livingstandard security system for urban residents had reached 22.5627 million;the objective population of minimum living standard security system forrural residents had reached 52.9828 million, and the objective populationof rural “five guarantees” had reached 5.7862 million. In 2011, themedical assistance fund for urban and rural financed 66.4935 people toattend health insurance, directly help 23.6727 million persons in postmedical curing. 11
  12. 12. 1.2.3 Social Welfare The social welfare institution, including old-age welfare, disablewelfare and children welfare, has gradually improved. Its key points areassisting the old, helping the disabled and aiding orphans. By the end of2011, in the whole nation, the social welfare organization were 42.5thousand; the nursing beds were 3.2105 million; the population ofadopted old persons, disabled persons and children were 2.3792 million;the social welfare enterprises absorbed 628 thousand disabled persons toobtain employment. 1.2.4 Veteran Benefit and Placement The veteran benefit and placement is a special policy treatment forthe veteran, military personnel in active service and their families. It ischaracterized by honor, compensation and preferential treatment,including veteran placement, preferential treatment for military personnelin active service and soldier’s family, compensation the bereaved family,and placement for the military retired cadres. 1.2.5 Housing Security Housing security is comprised of housing accumulation fund,economy housing and low rent housing. The housing accumulation fundplan is forced to build by national regulations, covering urban employees. 12
  13. 13. The accumulation fund is operated by government, financed by employerand employee. The low rent housing is financed by government, providedto the poor family by free or low rent. It used dynamic managementmeasures by personal application and verifying qualifications. Theeconomy housing is built by the qualified real estate companies, whichacquire tax preferential policy, and is sold to the low income familyaccording to government regulations. 1.2.6 Charities The government supports and encourages social organizations andsocial members to conduct charitable donation and social mutualassistance by the tax preferential policy. The government guides andsupport charities development, energetically cultivates public welfare andcharitable social organizations. By far, the social donation networks haveformed. Commercial insurance is also a component of social security system.It is located to meet the requirement of high income group, who wouldlike to improve security level. The insurance is managed by commercialinsurance company, operated by market. The government initiates theresidents with economic capability to purchase all kinds of life insuranceand health insurance production of commercial insurance companiesaccording to personal preference. 13
  14. 14. The framework of social security system in China is shown in thefollowed figure1: The framework of social security system The special care and Housing security Charity and commercial Social insurance Social assistance Social welfare placement insurance the placement for Low rent housing Old age Social welfare fot the retired soldier Minimum living standard odd pension security system for urban and rural residents s Economical housing medical The placement for insurance Social welfare for Retired army cadres children The five guarantees Maternity The special care for Housing insurance active soldier accumulation Social welfare for the fund Emergence assistance disable for victims Unemploymen t insurance The special care for the military dependent medical assistance Work injury insurance Preferential treatment for the Assistance for Vagrants armymen victims’ and beggars family members Figure1. system framework of social security in china PRC 1.3 Social Security Fund The social security fund is financed by two types. The socialinsurance fund is financed by employee and employer’s contributions andpublic finance. The social assistance and social welfare is mainlyfinanced by public finance. In 2011, 18 items of social security fundsinflowed ¥2840.205 billion, outflowed ¥2110.017 billion. The year-end accumulative surplus was ¥3.111859 trillion, increasing 312.79%,299.78% and 435.24% than that in 2005 respectively (shown in table 1). Table 1: social security inflows and outflows and surpluses in 2011 (unit: billion,RMB) 14
  15. 15. Social Inflows Outflows Surplus in the end of yearsecurityfunds amount ratio amount ratio amount RatioSocial 2619.453 92.22% 1907.001 90.37% 3030.372 97.38%insuranceSocial 185.659 6.54% 171.873 8.15% 64.535 2.07%assistanceSocial 35.093 1.24% 31.143 1.48% 16.952 0.55%welfareTotal 2840.205 100.00% 2110.017 100.00% 3111.859 100.00% In 2011, among 2619.453 billion of social insurance inflows, theemployers’ contributions, employees’ contributions, public finance andother finance were 1261.491 billion, 717.796 billion, 539.148 billion and101.018 billion, amounting for 48.16%, 27.4%, 20.58% and 3.86%respectively (shown in figure 1). Among 220.752 billion of socialassistance and social welfare funds inflows, the public finance was216.386 billion, and other finance was 4.366 billion, amounting for98.02% and 1.98%. public finance the employers’ contributions, employees’ contributions other finance Figure 2: the financing resources of social insurance fund in 2011 Figure 2: the financing resources of social insurance fund in 2011 In 2011,among 18 items of social security funds from public finance, 15
  16. 16. the central government and local government invested 450.876 billionand 304.658 billion, increasing 534.15% and 632.01% than that in 2005respectively. The proportion of social insurance, social assistance andsocial welfare invested by central government are 60.67%, 64.74 and15.27%. (Shown in table 2) Table2: the public finance investment from central and local governments (unit:billion, RMB) Public finance from central Total public finance investment Public finance from local government Item government Amount Ratio Amount Ratio Amount ratio Social 539.148 100.00% 327.107 60.67% 212.041 39.33% insurance Social 183.396 100.00% 118.733 64.74% 64.663 35.26% assistance Social 32.99 100.00% 5.036 15.27% 27.954 84.73% welfare total 755.534 100.00% 450.876 59.68% 304.658 40.32% The surplus of social insurance fund is totally ¥3030.372 billion,of which ¥7.183 billion is managed by People’s Bank of China andChina Agriculture Development Bank and central public finance specialaccount. The left surplus is managed by provincial, municipal and countygovernments, and ratios are 38.08%, 35.61% and 26.31% respectively. Inthe terms of area, the ratio of surplus in east, middle and west part ofChina are 56.78%, 21.54% and 21.68% respectively. In terms of depositstatus, the ratios of surplus in current account, time deposit and otherstatus are 38.44%, 58.01% and 3.55%. The scale of China’s social security fund expands gradually. Thefund is operated smoothly and steadily, which guarantee effectively allitems of social security benefits payments. 16
  17. 17. 1.4 Main Accomplishments 1.4.1 Achieving Basically the Building of Social Security SystemCovering Urban and Rural Areas, Promoting Social FairnessStrongly. Since 2005, China has promulgated more than 20 regulations onsocial security. The minimum living standard security system in rural hasestablished. The pilot reforms of basic medical insurance for urbanresidents, newly rural cooperative medical insurance and public old-agepension for urban residents have been implemented, which first built thecomplete social security for rural and urban residents historically in China.The goal of social security of all people with basic living security hasgradually put forward. The insured covered by newly rural cooperativemedical insurance and public old-age pension for urban and ruralresidents had grown from 2700 million in 2009, when the institutions hadbeen established, to 3550 million in 2011, increasing 12.15 times. Theinsured covered by basic medical insurance for urban residents and basicmedical insurance for urban and rural residents reached 2160 million in2005, over 1 billion in 2011, increasing 3.89 times. The coverage ofsocial insurance in rural areas expands rapidly. The insured of publicold-age pension and basic medical insurance were 161 million and 345million in 2005, over 600 million and 1.3 billion at the end of 2011, 17
  18. 18. increasing 2.86 and 2.77 times respectively. (The coverage of five socialinsurances since 2005 is shown in Figure 3) With more energy on social assistance and more improvement ofassistance standard, the coverage of social assistance expands gradually.In the end of 2011, the population covered by minimum living standardsecurity system had reached 75.5455 million, increased 1.59 times than29.1752 million in 2005. (The changing of population of minimum livingstandard security system in urban and rural in 2005-2011 can be shown inFigure4.) 18
  19. 19. minimum living standard security system in urban minimum living standard FIigure4.The changing of population of minimum living security system standard security system in urban and rural in 2005-2011 in rural In terms of social security investment, the key points are incliningto less developed areas and rural areas to narrow the gap of socialsecurity between regions. Since 2005, in the investment of public financeof central government, the proportion of middle and west parts of Chinais kept 80%. The investment in middle and west parts grows from¥54.757 billion to ¥360.995 billion, increasing 5.59 times. (The publicfinance investment from central government in east and middle& westarea in 2005-2011 is shown in Figure 5) 19
  20. 20. The public finance investment of central government to peasantsexpands gradually. The subsidy to newly public old old-age pension forrural residents grows from ¥1.076 billion in 2009, when the institutionwas built, to ¥35.206 billion in 2011, increasing 31.73 times. Thesubsidy to newly rural cooperative medical insurance grows from¥0.542 billion in 2005 to ¥80.177 billion in 2011, increasing 146.93times. (The public finance subsidies from central government to newlypublic old old-age pension for rural residents and newly rural cooperativemedical insurance in 2005-2011 is shown in Figure6) 20
  21. 21. old-age pension for rural residents newly rural cooperative medical insurance Figure6. The public finance subsidies from central government to newly public old old-age pension for rural residents and newly rural cooperative medical insurance in 2005-20111.4.2 Increase Social Security Level Steadily and Improves People’sLives Obviously In recent years, China improves the social security level in old-agepension, medical insurance and minimum living standard security steadily.That the old will be looked after, the sick will be medicated, and thepeople in difficulty will be helped, and they could enjoy the nationaldevelopment fruits. In terms of public old-age pension, from 2005 to2011, the benefit level of enterprise workers has been increased 7 timesconsecutively, from ¥713.25 in 2005 to ¥1516.68 per capita monthlywith the yearly growth rate of 13.4%. The extent of rising is 10.03percentages higher than CPI in the corresponding period. (The benefitchanging of public old-age pension for workers in urban enterprises in2005-2011 is shown in Figure7.) 21
  22. 22. Yuan/moth/personn Figue7. The benefit changing of public old-age pension for workers in urban enterprises in 2005-2011 In terms of basic medical insurance, the reimbursements ratios ofthree sub-items which are basic medical insurance for workers in urbanenterprises, newly rural cooperative medical insurance and basic medicalinsurance for urban residents has heightened gradually in the scopes ofthe “three catalogs” (basic pharmacy catalog, basic service facilitycatalog and basic service item catalog) of the national basic medicalinsurance. By the end of 2011, the ratios had reached 77%, 62%, and 70%.The factual reimbursement ratio of basic medical insurance has alsoincreased steadily in recent years, especially in rural areas. The factualreimbursement ratios of basic medical insurance for workers in urbanenterprises and basic medical insurance for urban residents increasedfrom 58.91% and 45.00% in 2005 to 64.10% and 52.28% in 2011,increasing 8.81% and 16.18% respectively. The factual reimbursement 22
  23. 23. ratios of newly rural cooperative medical insurance and basic medicalinsurance for urban and rural residents increased from 24.80% and23.78% in 2005 to 49.20% and 44.87% in 2011, increasing 98.39% and88.69% respectively. (The changing of factual reimbursement ratio in allsub-items of basic medical insurance in 2005-2011 is shown in Figure 8) Figure8. The changing of factual reimbursement ratio in all sub-items of basic medical insurance in 2005-2011In terms of minimum living standard security system, the averagesecurity level for urban and rural residents increased from ¥154.3 and¥74.83 in 2005 to ¥288.04 and ¥140.29 per capita monthly in 2011,increasing 86.68% and 87.48% respectively. The subsidy level increasedfrom ¥73.34 and ¥28.37 in 2005 to ¥227.92 and ¥100.07 percapita monthly in 2011, increasing 210.77% and 252.73% respectively.(The changing of accumulative rate of minimum living standard securityand subsidy level in urban and rural in 2005-2011 is shown in Figure9.) 23
  24. 24. Figure9. The changing of accumulative rate of minimum living standard security and subsidy level in urban and rural in 2005- 2011From 2006 to 2011, the average growth rates of minimum livingstandard security in urban and rural are 10.99% and 11.4%, 7.62percentages and 8.03 percentages higher than the average growth ratesof CPI in the same period. Especially since the universalimplementation of minimum living standard security system in ruralnationwide in 2007, the average growth rate of security level is 14.02percentages higher than the average growth rate of CPI at the sameperiod. (The changing of growth rates of minimum living standardsecurity in urban and rural and CPI in 2006-2011 is shown in Figure10). 24
  25. 25. Figure10. The changing of growth rates of minimum living standard security in urban and rural and CPI in 2006-2011 1.4.3 Solves the Problem of History Leave-over and Security ofSpecial Groups, Promotes the Harmony and Stability of Society. Chinese government keeps solving the history leaving over problemsof social security, and improving the living conditions of land acquisitionpeasants, low income and special difficulties groups, which provides agood condition for industrialization, urbanization and state-ownedreforming. By the end of 2011, 5 million uninsured retired people incollective enterprises and 20.9 million land acquisition peasants had beencovered by old-age pension. 10.31million retired people in bankruptenterprises and workers in running-difficult enterprises had been coveredby medical insurance. 3.12 million “workers with work injury in earlytimes ” had been covered by the social pool of work injury insurance. 25
  26. 26. Meanwhile, public finance from central government and localgovernments have keeping investing in medical assistance fund. Thedifficult population who get financially assisted by medical assistancefund to be insured increased gradually, and the person of direct assistanceto post remedied also increased. The population by assistance to beinsured increase from 4.8402 million in 2005 to 66.4935 million in 2011,increasing 12.74 times. The person of direct assistance to post remediedincreased from 2.5373 million in 2005 to 23.6727 million in 2011,increasing 8.33 times. (The changing of population who were difficultfinancially assisted by medical assistance fund to be insured and theperson of direct assistance to post remedied is shown in Figure 11.) Figure11. The changing of population who were difficult financially assisted by medical assistance fund to be insured and the person of direct assistance to post remedied 1.4.4 Stands up in Natural Catastrophe, Safeguards the BasicLiving of Victims by Disasters 26
  27. 27. The social security funds play a positive role in facing naturaldisasters, solving the temporary difficulties such as food, clothing,housing and hospitalization, transferring, rescuing, and settling thevictims and reconstruction. Since 2005, central government and localgovernments invested ¥141.07 billion of living assistance fund fornatural disaster, of which ¥102.91 billion were from central publicfinance, and ¥38.16 billion were from local public finances. 595.884million victims were assisted totally, of which 106.433 million peoplewere transferred and settled in emergency, 489.451 people were assistedfor living through winters and springs, 219.13 million houses werereconstructed. After natural catastrophes, such as Wenchuan earthquake,Yushu earthquake and Zhouqu mud avalanche, the public finance fromcentral government invested in living assistance amounting to ¥76.924billion. In disasters, 9.4779 million people were rescued, and 5.932million houses were reconstructed. The timely investment of emergentfunds makes victims settled down properly and the victims’ basic livingguaranteed effectively. 1.4.5. Expand the Scale of Social Security Fund, Provides anImportant Support for Economic and Social Development. The scale of social security funds expands rapidly, which establishesa solid material foundation for the sustainable development of social 27
  28. 28. security system. By the end of 2011, the accumulated surplus of socialinsurance funds had reached ¥3.030372 trillion, increased 4.34 timesthan that at the end of 2005. The average growth rate is 32.19%. 98% offunds were deposited in financial organizations. (The changing ofaccumulated surplus of social insurance funds in 2005-2011 is shown inFigure 12.) Figure12. The changing of accumulated surplus of social insurance funds in 2005-2011 Public finance from central and local governments has keptinvesting in social security. The social security investment from localpublic finance including the central government transferring paymentincreased from ¥341.845 billion in 2005 to ¥1416.4 billion in 2011,increasing 314.34%. It is higher than the growth rates of local publicfiancéinflows and outflows at the same period, which are 247.32% and267.4%, 67.02 percentages and 46.94 percentages higher respectively.(The growth rate changing of social security investment from local publicfinance, local public finance inflow and outflow is shown in Figure 13. ) 28
  29. 29. Figure13. The growth rate changing of social security investment from local public finance, local public finance inflow and outflowThe outflows of 18 items social security funds increased from ¥527.8billion in 2005 to ¥2.110017 trillion in 2011, increasing 299.78%. (Thechanging of the outflows of 18 items social security funds is shown inFigure 14.) Figure14.The changing of the outflows of 18 items social security fundsThe improvement of social security system, the expansion of inflows 29
  30. 30. and outflows, and the fast accumulation of funds play a positive role instrengthening public confidence, promoting social fairness, pullingconsumption, boosting domestic demand, tackling international financecrisis effectively, promoting the transform of economy developmentmodel, and also providing multiple support for economy and socialdevelopment. 1.4.6 The System of Social Security Management andAdministration has Formed Basically. By the end of 2011, the system and network of social securitymanagement and service has constructed gradually, which levels of SocialSecurity Administration Department are as main organizations includingbanks and kinds of service organizations. There are 11.9 thousand SocialSecurity Administration Department nationwide. Public service facilitiesof civil affairs are constructed greatly. The abilities of basic security andservice are keeping strengthening. The community service systemgradually developed. Meanwhile, social insurance supervisioncommittees are built in 28 provincial levels, 217 municipal levels and1189 county levels. The society is keeping supervising intensively. Levelsof governments organize relevant departments to launch specialsupervision and examination time after time, to promote thestandardization of fund management. 30
  31. 31. 2. The Main Existing Problems The reform of social security system in China is using the model of“fording the river by feeling for the stones”. Surrounding the reform ofnational economy mechanism, embarking from handling the most urgentproblems, the social security system is designed by groups, managed bydepartments, implemented by regions, the way of which push thedevelopment of social security system growing out from nothing anddeveloping rapidly. However, with the deepening reform and acceleratingurbanization, the improving of the economy and social development, theadvancing of democratic rule of law, and the gradual expanding ofpopulation mobility, flaws including the relevant institutions lacking oflinkage, scattering and overlapping gradually appeared. So some issuesshould be improved and improved further. 2.1 The Issue of Institutional Fairness Firstly, some groups have uninsured. Peasant-workers also belong toenterprise workers, and should be insured in urban social insurance.However, the proportion of insured peasant-workers in this system isobviously low. Take the public old-age pension as a example, by the endof 2011, the population of peasant-workers has reached 252.78 million.However, the population of peasant-workers insured in public old-age 31
  32. 32. pension for workers in urban enterprises were 41.4 million, insured inunemployment insurance were only 23.91 million, insured in basicmedical insurance for workers in urban enterprises were 46.41 million,and insured in work injury insurance were only 68.28 million. Theinsured rates were 16.3%, 9.5%, 18.4%, and 27% respectively, which areobviously very low. Most of peasants-workers could not benefit from theurban basic social security. The situation of peasant-workers insured in public old-age pensionfor workers in urban enterprises in 2006-2010 is shown in figure15. Figure15. The situation of peasant-workers insured in public old-age pension for workers in urban enterprises in 2006-2010Secondly, the social security policies in different regions do notuniformed. From the perspective of contribution policy, by the end of2011, the contribution base were not carried out according to the law ofsocial insurance in 21 provinces, 201 municipalities and 1252 counties,which regulates the base was calculated by the worker’s total salary. Thekinds of factual contribution rates of public old-age pension for workers 32
  33. 33. in urban enterprises were 16, and the highest was 22%, the lowest was10%. It is that the contribution rate does not uniformed yet in 8 provinces.In some province, it was amounted to 12 kinds that the contribution rateswere. In addition, the contribution rate or the contribution basis of socialinsurance was reduced by local decisions in 5 provinces, 4 municipalities,and 8 counties, the contributions were ¥51.734 billion less than itshould be. The insured conditions of social insurance, such as age and“hukou”, were restricted by local decisions in 3 provinces, 6municipalities, and 9 counties. The social insurance policies in 16non-dependent administrated development zones were carried outdifferently from local administration. So the disparity of contributionlevel varied greatly, and the contributions for enterprises and individualswere unbalanced. Thirdly, the benefit level gap is too big for some groups. Currently,public old-age pension for workers in urban enterprises and institution forold-age security of retirees in public organizations exist at the same timein China. This dual-track system of enterprise and public organizationsleads to the increasing gap between workers and cadres, which bringobvious problem of social unfairness and great social conflicts. Accordingto census, the pension per capita monthly in governments and publicorganizations is 1.07 and 1.1 times of those in enterprises in 1990, and1.54 and 1.57 times in 2000. In the 21st century, the difference amplified 33
  34. 34. further, and they became 2.25 and 1.89 times in 2010. Although thepension level for enterprises retirees are raised consecutively in 8 years,the absolute gap is still increasing. In more than 20 years, Chinese economy grows rapidly, the pensionfor enterprises workers grows more, and the average yearly growth ratereaches 12%. But the growth rate of pension for public organizationsreaches 16%. The gap is continuously widening. 2.2 The Linkage among Different Insurances do not EffectivelyRealized Completely Yet. Currently, social insurance system is designed by groups. There arenot explicit linkage among different institutions. Even if in the sameinsurance institution, the policies were implemented variously in differentregions. This brings the problems of repeated contribution, transferringand continuing contribution. By the end of 2011, 1.1242 million peoplehas participated public old-age pension for workers in urban enterprises,newly public old old-age pension for rural residents and public old-agepension for urban residents at the same time; 10.8611 million peoplehas contributed basic medical insurance for workers in urban enterprises,newly rural cooperative medical insurance and basic medical insurancefor urban residents repeatedly, which brings public fiancé subsidy¥ 1.769 billion excessively; 92.7 thousand people receive pension 34
  35. 35. benefits repeatedly of ¥684.529 million; 95.7 thousand people getmedical costs reimbursement of ¥147 million; 2.404 million peoplehave two or more trans-provincial personal accounts of public old-agepension for workers in urban enterprises nationwide. In addition, theproblems of old social security for rural areas are complicated, andpromoting of new social security for rural areas is heavy in some regions,so there are problems that the funds of old social security for rural areashave not transferred into new social security for rural areas. 2.3 The Operation Mechanism of Social Security Need to beImproved. Currently, various works of social security are governed by differentdepartments, and operated by different administrations. Contributions arealso collected by different organizations. The coordination andconnection among different departments is not enough, which in turninfluences the whole executing effects of policies to some extent. Forexample, there are some problems that lead the policy of financing thepoor to be insured in medical insurance by the medical assistance funds isnot carried out completely yet in some regions, such as the coordinationmechanism operates ineffectively because of basic medical insurance andmedical assistance are managed by many departments, the servicecapabilities of social assistance in grass-roots level in some regions are 35
  36. 36. not enough, the capabilities of management are weak, the workingmethods are still backward and so on. By the end of 2011, in 2514counties, the accumulated surplus of medical assistance in urban and ruralareas was ¥12.639 billion, the same as 80.28% of the public financeinvestment in medical assistance in those regions at the same year.However, according to the policies, the proportion of people covered byminimum living standard security system who was financed by medicalassistance fund to be insured in medical insurance was only 63.69%. Inrandom selective 7522 enterprises which are audited in five items ofsocial insurance contributions collected by different administrations, thecontribution base of 6123 enterprises was checked and ratifiedinconsistently in every item of insurance, and the ratio is 81.4%. In addition, special funds are not carried out for special purposesstrictly in some regions, ¥30.592 billion social security funds are mixedused among different social security items. 3. The Main Situations of Social Security to be Faced with Currently, China is and will be in the primary stage of socialism inthe long run. The main contradiction of social security is the conflictbetween the people’s growing social security needs and the backwardsocial production. Meanwhile, many challenges to social security systemare brought by the profound adjustment of economy structure, the 36
  37. 37. accelerating transformation of social structure, the sharp transformationof population structure. First, the aggregate economy grows continuously, but the growthrate becomes slow down. Currently, China is at the middle stage ofindustrialization and at the period of driving urbanization fast. Theendogentic dynamics of economy growth is powerful. The healthyfundamental situation is not changed in the long run. After 30 yearsconsecutive high speed growing, the economy will still grow steadily in along term. However, China need to be farewell to traditional extensivegrowth pattern, accelerate to transform economy development pattern,push the adjustment of industry structures, and pay attention to the qualityand efficiency of economy. In addition, because of the uncertaintiesbrought by the economy globalization and international financial crisis,Chinese growth rate will slow down in the future. This will lead somefirms bankrupt, lock, merge and transform. The flexible employed peoplewill continue to increase since the third industry is strived to develop, andthe poor will also be likely to grow. Those above mentioned negativefactors will challenge social security system. Second, with the rapid urbanization, the floating population willkeep in a large scale in long term. It is estimated that the level of China’surbanization in 2015 will be close to 55%, 60% in 2020, 70% in 2030,and the urban population will reach 1 billion in 2030. Thus, the great 37
  38. 38. amount of floating peasant workers between urban and rural areas willgreatly increase the difficulty in the connection of urban and rural socialinsurance institution. Third, the primary distribution has great disparity, and theadjustment of secondary distribution has greatly difficulty. Currently, theincome differentials between urban and rural area exceed 3:1. The incomeof highest 10% income group is 23 times of that of lowest 10% incomegroup. The proportion of urban and rural poor population in China is stilllarge in the future, and the difficulty of breaking away from poor willbroaden gradually. The conflicts between fairness and differentiation willstill be faced in improving social security system and developing theadjustment function of redistribution. In one hand, different social classesexpect to incline to urban and rural low income people by redistribution,to narrow the income gap, to reflect social fairness and to promote socialharmony. In the other hand, different classes start from theirselvesinterests, keep comparing benefits, appeal kinds of desires. It is not onlyto narrow different classes’ benefits, but also to have overallconsideration of different interests. This is the long term tasks to reformand improve the social security system. Fourth, the aging of population is accelerating. Compared with theaging of population in developed countries, there are 3 characters ofChina’s aging of population. The first is coming early. Western countries 38
  39. 39. go to aging behind the completion of industrialization. But China goes toaging without achieving wealthy. The second is coming soon. The agingin western countries from 5% to 10% uses 40 years commonly, but it is18 years in China. In 2010, the 65 and above years old people in Chinareached 120 million, accounting for 8.9% of total population. It ispredicted that it will be 13% in 2020, approximate 30% in 2050, and thepopulation of 65 and above years old will reach 400 million at that time.The third is lasting long. Because of large population base, it is perdictedthat the aging peak will appear in 2030s, and will keep 30 to 40 years. In2050 there will be one old person among 4 persons by preliminarycalculation. 4. The Objective of Social Security Development in China The basic objective of social security system in China is to build thewhole people sharing social security institution, mechanism and systemwith Chinese characteristics, to fulfill that the whole people are insured,the way of security is variety, the financing resources are diversified, themanagement and service is socialized, to provide the harmonious andsteady safety net for fulfilling comprehensive well-off society. Five aspects should be emphasized. First, the security items shouldbe complete, thus everyone could enjoy basic security. Second, thebenefits should be appropriate and could guarantee the basic living 39
  40. 40. effectively. Third, the management and service should be improved andcould guarantee the convenient, swift and comprehensive services forcitizens. Fourth, the institution should be customized and the funds couldbalance in the long run to realize sustainable. Fifth, the way of securityshould be multilevel to meet people’s higher needs. 5. The Main Tasks of Contemporary Social Security Reform inChina The main tasks of accelerating the development of social securitysystem with Chinese characteristics are to strengthen the fairness ofinstitution, to adapt liquidity, and to secure the sustainability. 5.1 Strengthen the Fairness In first, institution absence should be made up quickly, and the socialsecurity system should be constructed perfectly. Currently, the socialsecurity system has covered urban and rural residents. However, somepeople have still not been absorbed in current institutions such as thepeasant-workers, flexible employment groups and so on. The mostunfairness is without institutional security. Now, the prominent problemis that, the contribution rate of public old-age pension for workers inurban enterprises, which the employer should contribute 20% of worker’ssalary and the worker should contribute 8% of his salary, is too high to 40
  41. 41. make some enterprise and people without employers have the ability tocontribute, and also make many small firms and low income group peopleare not able to contribute,. So the measures of reducing contribution baseand rate properly should be taken to encourage and guide privateenterprises and flexible employed groups to participate in basic old-agepension and expand coverage. The history leave-over problems in theprocess of mechanism transferring should also be solved positively byadopting public finance investment and multiple channels of financing.Meanwhile, the institutions for the sick and the disable allowance and thesurvivor subsidy should be built, thereby the security system for the sick,the disabled and the survivor are integrated in the social security system. In second, the old-age subsidy institution should be carried out forthe urban and rural old-age people without any security. Now, thepopulation of old-age people without any security in rural and urban areasis about 100 million. The problem of their impoverishment is more andmore prominent. The national old-age subsidy institution dominated bythe central government should be developed gradually. In third, the whole benefit level of basic security should be improvedgradually, and the benefit differences among different groups should bedefined properly. With the development of economy, the social securitybenefit level should be improved in plan and step by step. The peopleshould share more fruits of economy and social development. In the time 41
  42. 42. of improving the whole benefit level, the benefit differences amongdifferent groups should be defined properly, and the function of socialsecurity to adjust social allocation should be utilized. The problem ofbenefit gap between enterprise workers and public organization cadres atthe same level should be controlled by policy adjustment to prevent thegap increasing further. Meanwhile, the benefit gaps between workers andresidents, urban and rural areas should be narrow gradually, and theminimum living standard between urban and rural areas should also benarrow gradually. 5.2 Adapt Liquidity In first, the administrated level of social security should beheightened. The administrated level of public old-age pension for workersin urban enterprises should be enhanced to the national level graduallybased on achieving the administrated level of provincial. The problems oftransferring and continuing of the records of social security for liquidgroups should be solved. The problem of medical insurance needs to beresolved is the settlement of medical costs among different areas. Theadministrated level of basic medical insurance, unemployment insurance,and work injury insurance should be realized gradually in municipal level,and balanced in provincial level. Some regions should try to be realizedin provincial level if possible. 42
  43. 43. In second, the policy connections in the same institutions should besolved properly. The institution of public old-age pension for workers inurban enterprises and public old-age pension for urban and rural residentsshould be connected and transformed, to adapt the liquidity of laborsmoving between urban and rural areas. The transforming path betweenurban and rural health insurance institutions should be linked gradually,to guarantee the rights of different groups while moving between urbanand rural areas. The medical security institutions for urban and ruralresidents should be uniformed. Combining with the reform of governmentorganizations, the management and administration mechanism of socialsecurity should be straightened out further, and the resources of socialsecurity management should be integrated to improve the operationefficiency. In third, the social security information management system shouldbe developed rapidly. The fundamental resolution is improvinginformation level in solving the conflict between adapting liquidity andinability of social security management and service. The social securityinformation management system should be built in uniform standard andcould be access to nationwide networking, and could share data withother public management system. By the way of informatization, thecontribution and benefit of the insured could be recorded timely andaccurately. The system could follow, record, serve and guarantee the 43
  44. 44. whole life of a person, and provide convenient, fast and excellent socialsecurity service for people. 5.3 Secure Sustainability First, social security funds should expand. The social securitysupporting ability should be strengthened, in securing the sustainability ofsocial security, especially in replying to the challenges of aging peak. Thefollowing measures could be take consideration. The public financeexpenditure structure should be adjusted further to increase theinvestment to social security. Based on the revenue of public finance, theproportion of social security to public finance should increase gradually.The single social security budget should be built, and the ratio of socialsecurity amount to GDP should be increased. The personal account ofold-age pension should be made full. The “empty” of personal account inpublic old-age pension for workers in urban enterprises should be solved.The scale of national social security fund should expand, and the nationalstrategy storage should be enriched. The investment channel of socialsecurity fund should be developed. The regulation on management ofsurplus and maintenance and appreciation of social security funds shouldbe promulgated to solve the problems of fund squeezing, appropriatingand depreciation. The supervision mechanism should be built toguarantee the funds safety. 44
  45. 45. Second, the legislation of social security should be paced quickly.Combined with the implementation of the Law of Social Insurance, the“Interim Regulations on the Collection of Social Insurancet”,“Regulations on Unemployment Insurance”, “Interim Regulations on theDisable Employment Fund Management”, “Finance Institutions on SocialInsurance Fund”,” Accounting Institutions on Social Insurance Fund” andetc. should be revised. The regulations of social insurance, socialassistance and social welfare institutions linkage should be improved tobuild a thorough system of social security law and regulation system. Third, the mandatory age for retirement should be prolonged inproper opportunity. Prolonging the age for retirement is the prioritypolicy in every country to replying aging. According to the facts ofpeople’s improving health level and the extending life expectancy, in thepremise of studying supply and demand in labor market and consideringthe psychological endurancee of people, the adjustment of retirementshould be adjusted properly using flexible strategy. Fourth, the complementary security should be developed, and multilevel security system should be built. The items of complementary socialsecurity not only include enterprise annuity, complementary medicalinsurance, and civil servant medical assistance, but also includecommercial old-age pension, health insurance and social charity business.Currently, the development of complementary social security in China 45
  46. 46. still lags, and it has limited influence on the whole social security system.The employer should be encouraged to build complementary insurancefor employee, through more powerful preferential tax policy. Meanwhile,the market resources should be fully utilized, and all kinds of socialorganizations and market subjects should be guided and standardized toset up complementary social security business. 46