Teaching Comparative Government and Politics

Monday, August 20, 2012

Aging populations and government capacities

A brief press release from the office of Chinese Vice Premier Hui Liangyu, provides a good introduction to an analysis in The Economist. The topic should sound familiar to Americans listening to campaign speeches, but the problems are much more complex. And, we have to ask, how does China's situation compare with less prosperous nations?

Vice premier calls for actively coping with aging problem

Vice Premier Hui

Chinese Vice Premier Hui Liangyu on Thursday called for actively coping with the country's aging problem that has extended its far-reaching influence onto economic and social development.

The first half of the 21st century is a key period for the rapid development of the country's aging problem, and China has not adequately prepared to respond to the aging population, Hui, who is also director of the China National Committee on Aging, said at a meeting.

Some 123 million Chinese were over age 65 by the end of 2011, accounting for 9.1 percent of the total population, according to official data.

The scale of the aging population, the level of its development and the burden put on society have exceeded expectations, Hui said…

Pensions: Fulfilling promises

Public pensions are fairly new to China’s countryside. Security in old age used to mean the family farming plot, not a pension pot. But by the end of last year 326m rural residents had been enrolled in a public pension… This wave of rural Chinese joins nearly 300m city dwellers enrolled in a variety of urban pensions…

The number of Chinese aged 60 or more is projected to grow from 181m today to almost 390m in 2035, almost a quarter of the world’s total. And only two working-age Chinese will support every person in retirement…

Pensions can rest on a variety of “pillars”, among them government handouts, schemes financed by mandatory contributions, and voluntary arrangements. China’s pillars are all of different heights, and some are wobbly…

[A] kind of apartheid is at work, distinguishing urbanites from country folk, and locals from migrants…

[M]any of China’s workers are highly mobile. Yet China’s pensions are not…

Another problem: the government envisages urban workers retiring on nearly 60% of their final wage. But that assumes their contributions earn high rates of return, keeping up with wage growth. In fact, most of the system’s assets languish in bank deposits or government bonds, where they barely keep up with inflation.

And that is not the worst of it. A lot of individual accounts hold no assets at all. According to Zheng Bingwen of the Centre for International Social Security Studies at the Chinese Academy of Social Sciences, individual accounts held assets worth only 270 billion yuan at the end of 2011, even though 2.5 trillion yuan had been paid into them. Local authorities had collected the remainder and diverted it to other, more pressing ends. These include building stadiums, buying cars and outright fraud…

These pressures have turned the “pre-funded” part of China’s pension system into a de facto “pay-as-you-go” system, where today’s payroll taxes pay for today’s pensioners…