China’s Social Reform and Re-building the Welfare System

Chinas Social Reform and Re-building the Welfare SystemLu MaiSecretary GeneralChina Development Research Foundation

ContentChinas Economic Growth and Social DevelopmentRevamping Chinas Social Security SystemPoverty ReductionEducationOld-age SupportMedical CareHousingCharacteristics of the Chinese welfare system and Difficulties in Revamping itCharacteristicsWelfare policies towards rural migrant workersReforming public financeReforming government performance evaluationConclusions

Chinas Economic Growth and Social DevelopmentChinas economy has been growing rapidly since the start of reform and opening in 1978.

Chart1

12.455

4.505

2.781

2.229

2.192

2.11

Country

GDP

GDP in 2005 (Trillion US$)

Sheet1

USAJapanGermanyChinaBritainFrance

12.4554.5052.7812.2292.1922.11

Sheet1

0

0

0

0

0

0

Country

GDP

GDP in 2005 (Trillion US$)

Sheet2

Sheet3

Chart1

3645.2174740459

4545.6239733557

9016.0365806125

18667.8223761059

60793.7292113314

99214.5543084772

183084.8

209407

Year

GDP

GDP of China (1978-2006)(100 million Yuan)

Sheet1

19783645.2174740459

19804545.6239733557

19859016.0365806125

199018667.8223761059

199560793.7292113314

200099214.5543084772

2005183084.8

2006209407

Sheet1

0

0

0

0

0

0

0

0

Year

GDP

GDP of China (1978-2006)(hundred million)

Sheet2

Sheet3

Chinas Human Development Index increased significantly.

Chart1

0.523

0.557

0.593

0.627

0.683

0.721

0.755

0.768

Year

HDI

Changes in Chinas HDI

Sheet1

19750.523

19800.557

19850.593

19900.627

19950.683

20000.721

20030.755

20060.768

Sheet1

0

0

0

0

0

0

0

0

Year

HDI

Changes in Chinas HDI

Sheet2

Sheet3

Social reform and the rebuilding of the welfare system: a matter of great urgencyIncome gap is widening;Employment uncertainty and insecurity;Underdeveloped social services;

Income gap is widening.

Human development gap between town and country is widening

Chart1

0.6120.6940.578

0.6210.7110.583

0.630.720.59

0.6380.730.595

0.6480.7380.603

0.6580.7450.613

0.6720.7550.626

0.6810.7640.637

0.6880.770.642

0.6980.7830.649

0.7090.790.656

0.720.7980.665

0.7330.8140.673

National

Urban

Rural

Year

HDI

Trend of Changes in National, Urban & Rural HDIs (1990-2002)

Sheet1

Sheet1

0.6120.6940.578

0.6210.7110.583

0.630.720.59

0.6380.730.595

0.6480.7380.603

0.6580.7450.613

0.6720.7550.626

0.6810.7640.637

0.6880.770.642

0.6980.7830.649

0.7090.790.656

0.720.7980.665

0.7330.8140.673

National

Urban

Rural

Year

HDI

Trend of Changes in National, Urban & Rural HDIs (1990-2002)

Sheet2

Sheet3

Goal of social development:Common prosperity;Ensuring a comfortable life for every Chinese; (2002)Harmonious society; (2006)New phase in Chinas reform and opening: social reform and revamping of the welfare system

Revamping Chinas Social Security SystemTraditional social security system in China SOEs reform

Collapse of peoples communeSince the 1990s, the Chinese government has taken numerous steps to revamp the social security system in areas of poverty reduction, old-age support, education, medical care and housing.

1. Poverty ReductionReform of the economic and social system has proven the most effective means of reducing poverty in China;Two-pronged approach: development and relief

1.1 Development policiesRural areas: three large-scale relief programmes since 1986;Increase government investment in and low-interest loans to impoverished rural areas;Enable farmers to improve production conditions and poor villages to improve infrastructure;Urban areas: Creating employment;Support for securing small loans and training and preferential taxation policies;Paying people to provide public and community services;

1.2 Relief policiesSystem of subsidence allowances for the urban poor (1999);System of subsidence allowances for the rural poor (2004);

2. EducationImprove nine-year compulsory education; Support higher education and secondary vocational education;

Education expenditures accounted for 2.86 per cent of GDP in 2006. The goal is to increase this to 4 per cent of GDP.

3. Old-age support3.1 Urban areas: Three-Pillar Model(1997)A mandatory publicly-managed pillar, a mandatory privately-managed pillar and a voluntary pillar issuesthe shortfall in accounts held by people who worked under the old scheme but will paid under the new one (the middle men); the endowment insurance scheme still plagued by limited coverage; the management and investment of the funds;

3.2 old-age security in the countryside1992Funded entirely by the individuals;Contemporary reformallocate more funds to subsidize rural endowmentBesides, the Chinese Government has also borne the cost of endowment insurance for two categories of rural population: Infirm or childless elderly people; rural parents over 60 years old who only have one child or two daughters.

4. Medical care4.1 Market-oriented reformSignificant expansion of medical resources and improvement in medical facilitiesProblemmedical expenses grow faster than personal income; a large part of it is borne by patients.

4.2 Urban and rural medical care system

5. HousingHousing reform (1998)the poorest families can rent subsidised apartments provided by the government or their employers; the lower-to-middle income households can buy inexpensive apartments whose cost is subsidised; the more prosperous can either buy or rent commercial apartments at market price; Problem:some local governments encouraged the development of commercial housing at the expense of affordable or low-rent housing;

Characteristics of the Chinese welfare system and Difficulties in Revamping it1. CharacteristicsA dual structure on the way to integration;Wide coverage with low levels of provision;Rapidly increasing burden on the government;Market-based;Issues:Welfare policies towards rural migrant workers still almost blank;Public finance and government performance evaluation reform needed

2. Welfare polices towards rural migrant workersStill left to fend for themselves;

Involves the value and policies pursued by the government as much as its financial capacity and governance skills;Budgetary allocations from both the central and provincial governments needed;

3. Reforming public finance

3.1 Improve the structure of public spending;3.2 Establish sound public finance;3.3 Improve the transparency of public finance.

Government revenue increased rapidly.

Chart1

1132.26

1159.93

2004.82

2937.1

6242.2

13395.23

31649.29

39343

Government Revenue of China (1978-2006)

Government Revenue of China (1978-2006)(100 million Yuan)

Sheet1


19781132

19801160

19852005

19902937

19956242

200013395

200531649

200639343

Sheet1

0

0

0

0

0

0

0

0


Sheet2

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Government investment in development activities should be reduced and spending on administrative overhead strictly controlled.

Chart1

1122.09718.98146.96167.8452.935.41

1228.83715.46199.01193.8475.5344.99

2004.251127.55408.43191.53171.06105.68

3083.591368.01737.61290.31414.56273.1

6823.722855.781756.72636.72996.54577.96

15886.55748.364384.511207.542768.221777.87

33930.289316.968953.362474.966512.346672.66

Total Government Expenditure

Economic Constrution

Social, Cultural and Educational Development

National Defence

Admininstrative Expenses

Other Expenditure

Year

Government Expenditure by Function(100 million Yuan)

Sheet1

YearTotal Government ExpenditureEconomic ConstrutionSocial, Cultural and Educational DevelopmentNational DefenceAdmininstrative ExpensesOther Expenditure

19781122.1719.0147.0167.852.935.4

19801228.8715.5199.0193.875.545.0

19852004.31127.6408.4191.5171.1105.7

19903083.61368.0737.6290.3414.6273.1

19956823.72855.81756.7636.7996.5578.0

200015886.55748.44384.51207.52768.21777.9

200533930.39317.08953.42475.06512.36672.7

Sheet1

000000

000000

000000

000000

000000

000000

000000

&A

Page &P

Total Government Expenditure

Economic Constrution

Social, Cultural and Educational Development

National Defence

Admininstrative Expenses

Other Expenditure

Year

Government Expenditure by Function

Sheet2

Sheet3

Encourage greater public participation:

Participatory Budget Reform in China

4. Reforming government performance evaluationMarket failure vs. Government failureExperience of OECD countries be introduced to China.

Conclusions

Revamping the welfare system will help improve the living conditions of all people across China, but particularly those in the low-income bracket, thus leading to greater stability and harmony in society;The people will have more incentives to spend. And as urbanisation advances, the domestic market will further expand;

Labour productivity will grow, as will labour costs in China. This will put more pressure on the industries to modernise;The service sector, from health to education, insurance, banking to real estate, will register robust growth.

AcknowledgementsCDRF has received generous support in its work from the Government of UK and many British companies: DFID HSBCVodafone BPShell Rio Tinto Anglo American TescoCambridge China Development Trust

Thank you!

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China’s Social Reform and Re-building the Welfare System

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