Building a Sustainable Social Welfare System

Over six decades ago, when the People’s Republic of China had just been founded, it followed the economic model of the Soviet Union, featuring public ownership with no space for private enterprise to develop. This meant that if you were employed, then you were employed in a state-owned or collectively owned enterprise that took responsibility for everything in the life of their employees from housing and medical care to pensions. However, this meant the rural residents, which made up the majority of the Chinese population, and unemployed urban residents were excluded from the social security system.

After reform and opening-up began, China’s economy has made much headway, with a more and more vibrant private economy creating half the country’s wealth. By the end of 2011, there were 9.64 million private entrepreneurs and over 200 million employees in the private sector. Under the old social security system, the number of people that couldn’t enjoy the benefits provided only in state-owned enterprises was growing. That gave the impetus for reform.

China started to promote pension plan reform in 1991, building a framework under which pension funds come from the government, employers and individuals. From 1999 China gradually cancelled the practice of providing housing to employees of government, public institutions and state-owned enterprises almost free of charge and started to promote commercial housing. The medical insurance system reform was also carried out with the phasing out of free medical care at state expense in government institutions and building a new system that, like with pensions, combines social assistance with personal accounts. The Ministry of Civil Affairs now puts more focus on providing better benefits to seniors and people in disadvantaged groups, such as disabled people and orphans.

The reform process hasn’t been smooth. People who were once under full welfare coverage are dissatisfied, as they now have to pay contributions towards their pensions and medical care themselves. The commercialization of real estate and education has been deemed as one of the causes for soaring housing prices and education fees. However, the reform is undoubtedly moving in the right direction. Bringing in social assistance has mitigated the burden of enterprises and extended basic medical care and pension insurance coverage to rural residents and unemployed urban residents. The changes in housing and education have boosted the Chinese real estate market and the development of education. The average per capita living space of Chinese people has risen from 3.6 square meters to more than 20 square meters. The proportion of high school graduates enrolled in higher education institutions rose to 26.5 percent in 2010 from 1.4 percent in 1978. The country also reports a 99 percent attendance rate for elementary school and a 97 percent rate for middle school.

The 2012 government work report put forward for the first time that government spending on education should account for four percent of GDP and the number of newly constructed low-income housing should be over 7 million units in 2012. The Chinese government is striving to build a more equitable social security system.

On the inadequacy of social security in China, Zhang Chewei, deputy director of the Research Institute of Population and Labor Economics of the Chinese Academy of Social Sciences, says that China is still a developing country. Economic development remains the priority as many people’s basic needs haven’t yet been satisfied. Therefore the government needs to seek a sustainable social security system that also takes into account the needs of economic development. However, it is expected that Chinese people will enjoy better social welfare in the future.