26 March 2019
China's leaders have to manage the country's shrinking pool of workers and the challenges to urbanization. Photo: Bloomberg
China's leaders have to manage the country's shrinking pool of workers and the challenges to urbanization. Photo: Bloomberg

POLICY WATCH: Racing against a demographic tide

One is a demographic tide that it must race against and the other is a wave it wants to ride to greater prosperity. At the Communist Party’s direction-setting meeting in Beijing from Nov. 9, China’s leaders are expected to work out how they will confront the economic burden posed by the nation’s shrinking pool of workers as well as overcome the barriers to urbanization.

The central government is betting that encouraging migration from the countryside to expanded urban centers over the next few decades will unlock domestic demand in the economy so that it is driven more by consumption and less by its traditional exports.

The whole process will involve nothing less than a massive economic transformation but there are few other options for sustainable growth. To get there, China must expand its social welfare safety net to give greater protection to the elderly, the underprivileged and the country’s migrants from the countryside. 

The issue came to the fore in Heilongjiang province in northeast China early this month when Premier Li Keqiang {李克強} said China needed to do more to ensure reforms benefited more people and members of the public were not exposed to events that disrupt society’s “psychological bottom line”.

Li said the pension, basic medical care and welfare assistance systems needed to be improved and extended to more people. But, at the same time, the burden for sustaining those programs will fall on the shoulders of fewer and fewer people.

Pension reforms are expected to be among the first changes to come off the policy production. Suggestions include merging state and private-sector employee pension schemes, increasing coverage and broadening the range of assets pension funds can invest in.

If nothing is done the existing pension system could face a 68.2 trillion yuan pension shortfall by 2033, according to Ma Jun, Deutsche Bank’s chief economist for greater China. The report estimated that by this year projected liabilities would exceed assets by 18.3 trillion yuan.

But the remedy to the problem goes beyond changes to the social welfare system to encompass reform of finance, taxation, land, state assets, innovation, foreign investment and governance, according to the Development Research Centre, a State Council think tank.

Market watchers say there is still strong opposition to the proposed reforms, and interested parties will fight to the end to protect their benefits. Civil servants and other state-sector workers, for example, are unlikely to easily give up their claim to the 70 to 90 percent of their final salary they can receive when they retire without ever having made a contribution.

By comparison, private-sector employees can only expect to receive 50 to 60 percent of their former pay, despite putting in a combined 28 percent salary contribution with their employer.

Another major change that leaders are tipped to address is whether to relax the household registration system, which blocks migrant workers and their families from access to education and social welfare beyond their home villages. This is regarded as a major hurdle to luring more people to urban areas.

Another possibility is land reform to let farmers to sell their land when they leave their villages. Many farmers refuse to leave their land, their primary asset, for fear local governments will sell it under them for development.

– Contact the reporter at [email protected]



EJ Insight writer

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