Media  Global Economy  2023.03.22

2015: the Chinese Communist Party gives up "to move back the legal retirement age"...

Le Monde on March 10th, 2023


Column by Sébastien Lechevalier, Professor at Ecole des Hautes Etudes en Sciences Sociales (EHESS, Paris), Senior Researcher at Maison franco-japonaise (UMIFRE 19, Tokyo) and at the Canon Institute for Global Studies (CIGS, Tokyo).

In his column, Sébastien Lechevalier describes the ups and downs of a pension system reform launched by Beijing eight years ago.

Column. The Chinese pension system is highly segmented according to the categories of workers and their places of residence, the result of a historical construction in stages. This segmentation has become problematic as a result of the rapid aging of the population and the economic downturn, which has exposed deep inequalities and fueled strong popular discontent.

For this reason, the government launched a reform in 2015 to formally unify the pension systems. But this reform did not reduce the gaps between the different categories, due to the structural characteristics of the system that reproduce inequalities in the labor market at retirement (Huan Wang and Jianyuan Huang, "How Can China's Recent Pension Reform Reduce Pension Inequality?", Journal of Aging & Social Policy, 2021).

The starting point for the 2015 reform was a proposal by the Chinese Communist Party to raise the legal retirement age. But massive public opposition (more than 70 percent unfavorable, according to several surveys) led the government to change its tune...

A new source of inequality

The system had indeed reached its limits. To sum up, there was a basic funded scheme for all citizens (but differentiated between rural and urban areas), with a voluntary contribution in exchange for a very low pension amount (about 10 euros per month before 2015).

In addition, there was a compulsory participation scheme for urban employees of private companies, financed by contributions from companies and employees, with a pension level indexed to past earnings. Finally, a pay-as-you-go system guaranteed a fairly generous pension for civil servants only, financed by the general state budget, without contributions.

The core of the 2015 reform was the transformation of the civil servants' pension system into a partially funded system, making it formally converge with the other two systems. But the inequality between civil servants and other workers remains de facto.

While coverage by a pension system is officially compulsory, only about 70 per cent of non-civil servants are covered, in particular because of job instability. In addition, the introduction of a supplementary pension for civil servants and employees of companies in certain sectors (finance, transport, etc.) has created a new source of inequality.

Disconnecting pension levels from previous income

Finally, the level of pensions is itself very unequal: it represents about 70 per cent of the basic salary for civil servants, just over 40 per cent for private sector employees and just over 10 per cent for the basic pension.

In order to achieve real equality, but also to avoid any large-scale social movement, the two researchers recommend ensuring a decent level of pension for all retirees on the basis of citizenship alone, but also disconnecting the level of pensions from previous income, in order to increase the level of pension for the poorest workers.

Although the Chinese and French situations are of course incomparable, it is interesting to note that Beijing was able to listen to the opposition to the initial reform and the demand for more equality. Changing the rules of a pension system when inequalities are deeply rooted in status and career paths is not very effective and not very acceptable to the population.

If the objective is really to ensure the survival of the system, then questions of social and political sustainability must be taken into account, as well as those of financial sustainability.