· Web viewAuguste Comte, the father of sociology, famously said, ‘demographics is...

China’s Changing Demographics – Old Age Becomes a Key Factor for China

January 2014

Paul French

This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of ECRAN and can in no way be taken to reflect the views of the European Union.

This project is funded by the European Union

This project is implemented by a Consortium led by Steinbeis GmbH & Co. KG für Technologietransfer

Executive Summary

Auguste Comte, the father of sociology, famously said, ‘demographics is destiny’. China’s current demographic situation will have a profound impact on the future of its developmental project. Crucially, decades of economic development and demographic control are causing unprecedented alterations in the ratio of retired to working people in China. Development has brought urbanisation and increased longevity, meaning that the over 50 age group is more populous, more urban, and older than ever before. Demographic control in the form of the ‘One Child Policy’ has also contributed to increasing the ratio of old to young by causing the working age population to shrink. This has resulted in a ‘4-2-1’family structure, where each working age child has two retired parents and four living grandparents.

In the past, working-age children have generally taken care of their retired parents and grandparents in the home. In China’s new demographic reality this will no longer be possible due to the increased number of retired people per household; the increasing severity, frequency, and duration of illnesses as these people age; and the lack of working-age siblings with whom to share the financial and logistical burden. China’s nascent social welfare system is currently unable to provide for the healthcare and pension needs of the aging population. Further reforms are necessary, as requiring retirees and families to self-fund their retirements could slow China’s development. Reforms will continue to be hampered by financial difficulties related to corruption and the smaller tax-paying workforce, so the Chinese government needs to take a creative approach to providing for its aging population. Importantly, the government should recognise that care of the elderly must increasingly be done by trained aged-care professionals, whether at home or in specialised facilities.

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ISL19 China’s Changing Demographics

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China’s Changing Demographics – Old Age Becomes a Key Factor for China

1) Introduction

1.1) The Key Demographic Trends

China’s demographics are in the midst of a period of enormous change - what is often called the country’s “demographic time bomb,” a rapid ageing of its 1.3 billion population tied to the three-decades-old one-child policy. According to the China National Committee on Ageing, some 200 million Chinese adults will be over age 60 as of 2013. China, of course, is still the world’s most populous nation, and has the second-highest number of young people in the world, behind India (a country with a very different family planning regimen and no one-child policy), but the country is moving from being overwhelmingly young and rural to becoming a country that is, in the majority, older and urban. The National Bureau of Statistics has indicated that it expects (even with the ongoing liberalising of the one-child policy) that China’s population number of 12-19 year-olds will drop by a significant 18.2% from 2010 levels by 2020. China’s teenage population is set to decline further still to approximately 9.1% of the total population in 2050, from 13.8% today. Estimates as to the future projection of China’s elderly (classified as over-60) population vary and the latest statistics from China’s National Bureau of Statistics are outlined in detail in Table 2 below. However, as a rough guide, China’s National Bureau of Statistics estimates that by 2015 there will be some 200 million Chinese people over 60 while, according to predictions from the United Nations, nearly three out of 10 Chinese people will be older than 60 by 2040. This means that elderly people in China will be one of the largest single groups in the world numbering approximately 300 million by 2030 and perhaps 480 million by 2050. Elderly Chinese will also be one of the largest single groups of older people seeking to access post-work retirement financial products (pensions) and geriatric healthcare. This marks the decline in the number of economically active people in China, and an increasing proportion of elderly dependents.

The twin phenomena of enhanced longevity and the One-child policy, introduced in 1978, means China has seen the most rapid move from a demographic “sweet-spot” to an ageing society. This move towards an ageing society will have serious ramifications for China’s government, economy, markets and the people themselves as they are forced to adjust to a national economy with a smaller available working population and higher rate of retirees and elderly citizens. Discussions on how China will manage this transition from a youth-based to an elderly-based society are today often referred to as the “will China get rich before it gets old?” debate. Inevitably China will see its economy challenged by both a decline in the working population and a rise in fiscal deficits linked to increased government spending to cope with the ageing population. Healthcare spending, pensions, social welfare, long term care – all will be additional costs to China’s social system. This comes at a time when China’s urban social welfare system is still in a nascent stage – pensions, healthcare and labour force reform (employer funded retirement programmes, mandatory retirement

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ages, etc) are all still in a process of change.

Table 1: CHINA POPULATION STATISTICS, 2013

Birth rate 12.31 births per 1,000 population

Death rate 7.17 deaths per 1,000 population

Sex ratio (at birth) 1.14 male/female

Infant mortality rate 15.62 deaths per 1,000 live births

Population growth rate 0.481%

Source: National Bureau of Statistics

1.2) Greater Longevity

Chinese people are living longer; already, increased longevity means that Beijing and Shanghai are among the ‘oldest’ cities in Asia after Japan’s. Of course, increased longevity is good news, but it will inevitably place more burdens on the healthcare system. Long-term care and provision for the aged and their age-related diseases will place strains on a system already being challenged by increasing instances of pollution-related diseases. According to China’s National Bureau of Statistics, average life expectancy is now 73 for men and 79 for women, up over 12 years since 1970.

China’s longevity has certainly increased, though not as much as might be expected after 30 years of reform and economic growth. From 1990 to 2008, life expectancy in China rose 5.1 years, to 73.1, according to a World Bank (WB) compilation of United Nations (UN) data. Nearly every other big developing country, be it Brazil, Egypt, Ethiopia, India, Indonesia or Iran, had a bigger increase over that span, despite much slower economic growth. Since 2000, most of Western Europe, Australia and Israel, all of which started with higher life expectancy, have also outpaced China in terms of average life expectancy age. This slower-than-expected growth in life expectancy is due to a combination of conflicting “wealth benefits” and “wealth deficits” – according to the UN, “With rising incomes in China, people could afford better food, clothing and shelter. But they were also exposed to more disease because so many of them were moving to cities. In addition, China’s demographic statistics have been uniquely affected by the one-child policy, which introduced decades of centrally imposed fertility restrictions.

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Table 2: THE POPULATION OF THE OVER-60S IN CHINA, 2000, 2005, 2010 AND 2015

2000 2005 2010 2015

As a % of the Chinese population 10.66 13.01 14.85 16.91

Number of people (million) 132.5 167.4 198.0 233.1

Number of women (million) 66.6 85.5 100.2 117.0

% women 50.3 51.1 50.6 50.2

Number of people (million):

60-64 39.4 50.7 66.4 85.6

65-69 37.2 42.7 45.9 51.8

70-74 27.9 34.5 37.7 38.0

75-79 16.1 22.0 26.7 32.3

80-84 8.2 11.8 14.1 16.7

85-89 2.8 4.2 5.8 6.7

90-94 0.9 0.3 0.4 0.5

95+ 0.1 0.2 0.4 0.5

Total 132.5 167.4 198.0 233.1

Source: National Bureau of Statistics (NBS)

1.3) The One-Child Policy

Launched in 1979 after the population topped one billion, the one-child policy remains the most ambitious of the Communist Party’s many attempts at social engineering. The government believes the one-child policy curtailed population growth by 400 million extra births, but implementation has always been patchy. The policy has been most effective in cities rather than the countryside, and consequently the number of one-child families is far higher in urban China than rural China: above 80% in most tier 1 and 2 cities. In urban China, residents have faced heavy fines and can lose their jobs if they have a second child. In

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addition, many urban couples now state that they prefer to have fewer children, citing societal norms, the high cost of raising children, and lack of space as explanations. But in the countryside, where parents depend on children to help them and support them in their old age, resistance has been widespread and continual.

1.4) Job Done: The End of the One-Child Policy?

When the one-child policy was introduced, it was intended to last for only one generation, long enough to control the nation’s population explosion, but short enough to avoid distorting the age structure beyond all repair. In 2004 the National Strategic Research Project Group on Population Development was formed to advise on the next course of action. When its report was published in January 2007, the recommendation was simple: do nothing. The main conclusion of the report was that for the population peak to be controlled at around 1.5 billion, the national gross birth rate over the next 30 years needed to be ‘stabilized’. Unsurprisingly, the policy has not always been popular, and the recent nationwide population census led to an influx of babies abandoned at orphanages, as people feared penalties which can include fines in urban areas, or the family’s house being bulldozed in rural areas. The government has attempted to ameliorate the unpopularity of the policy using inventive campaigns to encourage family planning. Rural families in some areas have been paid not to have more children, while in other areas advertising campaigns were used. One example of a sign that appeared in villages read, ‘If you want to get rich, have fewer kids and raise more pigs’.

In 1995 Beijing approved a pilot project in six rural counties where family planning workers would try to limit births by expanding health services for women, providing more information about contraception and allowing couples to make their own decisions. Then in 1998 the UN population agency encouraged China to take the experiment a step further, providing funding and training to 32 rural counties that agreed to eliminate the birth permits, targets and quotas associated with the One-child policy, and stop promoting abortion as part of family planning. According to Chen Shengli, a senior SFPC official, health workers across the country have been impressed by the results of the UN project. Xie Zhenming, a senior official at the government-affiliated China Population Information and Research Centre who campaigned for the changes, estimates that cities and counties accounting for nearly a quarter of China’s 1.3 billion people have eliminated birth permits and quotas over the last five years.

Faced with fast-paced demographic change, Beijing has been slowly repealing the one-child policy in China’s major cities (though to a far lesser extent than in the countryside) by introducing various exemptions. According to the latest government statistics, 36 per cent of the population is still required to follow a strict one-child policy in the richer coastal provinces, while in 19 of the poorer provinces 53 per cent may have a second child if their firstborn is a girl. Those families that belong to ‘national minorities’ follow looser regulations, while there is no family planning policy at all in Tibet. Despite this it seems that the model three-person household will remain the dominant form of family unit for some time to come among the rising urban middle class. A Shanghai Academy of Social Sciences survey in 2012 found that over 90% of Shanghai couples are now eligible to have more than one child, but that 45% of families had ruled it out as an option due to cost, apartment size

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and the fact that three-person families are now the norm. In late 2013 it was announced that China would make substantial changes to its one-child policy (see 1.5 below); however, the policy had been in a process of some relaxation for a number of years with various exclusion categories being introduced prior to the 2014 changes.

Table 3: URBAN EXEMPTIONS TO THE ONE-CHILD POLICY, 2012

* If both parents are from one-child families (i.e. both parents have no siblings)

* Both parents are university graduates

* The first child is severely handicapped or disabled

* If an RMB50,000 (US$8,000) fee is paid (applies to migrants to urban areas)

* A Chinese citizen is married to a foreigner

* Twins

* Adoption

* Registered as an official category of ethnic minority (and therefore exempt entirely from the one-child policy)

Source: State Population And Family Planning Commission

1.5 The End of the One-Child Policy?

In late-2013 the Standing Committee of the National People's Congress (NPC) passed a resolution allowing couples to have two children if either parent is an only child. This is an extension on the previous guidelines (as listed in Table 3 above) that allowed for a second child if one parent was an only child and urban registered. The new guidelines allow for any couple who are both from single child households to have a second child. It is expected that this new reform to the one-child policy will be rolled out gradually and incrementally around the country, with provincial authorities entrusted to make their own decisions on implementation according to the local demographic situation. While this new relaxation will mean some additional births (and, it is hoped, a reduction in forced abortions and abandoned children) many analysts do not expect large numbers of urban couples to opt for a second child due to financial issues. According to Zheng Zhenzhen, at the Institute of Population and Labour Economics in Beijing, less than 2% of parents cite the state’s policy as the reason they have only one child. With the population already ageing rapidly, while any additional children will increase the potential future labour pool and the ability of the extended family to provide care, it will not in any way be an immediate panacea to the current problems of elderly care or the state’s growing pension burden.

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2) Key Results of China’s Demographic Change

2.1) China’s Shrinking Workforce

The IMF forecasts that China’s present labour surplus of about 150 million people will decline to 30 million by 2020. According to IMF predictions, China will reach its Lewis Turning Point, where development begins to trigger inflation because the industrial sector can no longer source labour from the agricultural sector, in 2025. Further, the IMF projects that by 2030 China could have a labour shortage of 137 million workers or more. Coupled with the aforementioned increase in the proportion of non-working retirees, this will mean a swing in dependency ratios. According to Michael Beckley of Harvard Kennedy School’s Belfer Center for Science and International Affairs, the fiscal cost of this change alone may exceed 100 per cent of China’s GDP.

It may be the case that China’s economy can continue to grow with a reduced workforce, however a reduction in the number of tax-paying workers does mean that the cost of care for the elderly and financial provision for their welfare is placed upon the shoulders of a small number of working age Chinese. China’s core working-age population, those aged between 20- to 39-years-old, is already shrinking. China’s National Bureau of Statistics reported that the number of working-age Chinese fell by 3.5 million in 2012. The phenomenon of China’s shrinking workforce has obvious implications for government spending projections, and the reduction in the available pool of labour helps explain the 12% to 15% jump in wages across China in the past decade. Crucially for elderly care provision, the ratio of workers to retired people will decline from about six to one in 2013 to approximately two to one by 2040. This will be roughly equivalent to Western Europe now.

It is worth noting that China’s government can take steps to slow the arrival of the Lewis turning point, even though the IMF warns the “looming demographic changes are large, irreversible and inevitable in the medium term”. In 2014 the authorities have, as mentioned above, significantly relaxed the one-child policy. However, there are other measures available to the central government. For instance, they could also encourage greater labour-force participation, especially by loosening restrictions on people moving around China to allow an easier flow of the underemployed to where there are shortages and demand. It is also government policy to try and move the economy up the “value curve”, boost productivity and encourage the services sector to expand. However, the fact is that there will be fewer tax payers in the coming years and that the ratio of working to retired citizens will become increasingly skewed towards retired people.

TABLE 4: PRIMARY REASON FOR RETIREMENT, 2012

%

Reached statutory retirement age 78

Due to ill health 8

To become a full time carer for spouse/partner/family member 4

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Early Retirement (voluntary) 2

Other reasons 8

Source: China Health and Retirement Longitudinal Study, 2013

2.2) Elderly Citizens’ Housing Requirements

In terms of housing needs, China’s ageing population can be divided into two groups. The first group, comprising the majority of elderly Chinese, is composed of those who own their apartment, occasionally with mortgages (approximately 20% of over 50s in urban areas) but more often outright. In some ways this group, which does not have ongoing rent commitments, can be seen as fortunate. However, many of its members bought older apartments that require costly renovation and maintenance. Additionally, some retirees will begin to find their current homes unsuitable as they age and will need to change to more accessible, low maintenance accomodation. Given China’s skyrocketing urban property markets this may be difficult (see section 2.2.1).

The second group contains those who were unable to take advantage of the property privatization of the late 1990s [and have effectively missed out on the opportunities of the economic boom of the past 30 years in China]. Many of these elderly and retired people are supported by, or live with, their grown-up children in multigenerational homes (though may retain mortgages on other properties). Others live in rented apartments, though (as Table 5 shows) this is now becoming a minority of retired urbanites. While their rents may often be subsidised by the government, army, former work units (danwei) or other bodies, rent still represents an ongoing cost that erodes their savings and/or pension power.

TABLE 5: PROPERTY FINANCIAL STATUS OF RETIRED URBAN CHINESE, 2012

%

Property being purchased on a mortgage 21

Property being purchased on a mortgage (self-paid) 9

Property being purchased on a mortgage (paid by children) 12

Property owned outright 73

Property owned outright (self-paid) 65

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Property owned outright (paid by children) 8

Other arrangement 6

Total 100


NB: renters are included in “other arrangement”

Based on this information, housing can be seen as a relatively minor concern for the majority of China’s ageing population, compared to the need for adequate healthcare and pensions. Already rates of home ownership for urban Chinese are high in the tier one and tier two cities – approximately 87% for the over-50 age group (though a percentage of these are multi-generational family homes) - and the vast majority will live in an owned property (albeit with perhaps others of their family). The strong tendency of Chinese adults towards having some kind of secure property ownership before they reach retirement age indicates that housing will not be a major issue for China’s burgeoning elderly in the future. One area that warrants further study concerns the accessibility and suitability of owned housing. A significant proportion of those elderly who own their homes could potentially need to move to a new house as their health and mobility deteriorate with age. For example, a third of over-50s home-owners inhabit public-built apartments, invariably the property they bought at deep discounts when the state sold off its vast public housing stock in the 1990s. The suitability of these old-style apartments for elderly persons should be the focus of future research.

2.2.1) Downsizing Housing Needs

In Western Europe’s more developed private property market the concept of downsizing housing at retirement is well established. In general retirees need less space once their children have homes of their own. Selling a larger property to buy a smaller one is thus a common way for European retirees to release capital tied up in the larger property. This adds to the financial pool that can be invested into products such as improved healthcare plans, life insurance and retirement savings.

In China, downsizing is a newer and less common phenomenon. This can be partially explained by the novelty of the privatised property market, the norm of intergenerational homes, and generally smaller apartment sizes, however these factors alone do not seem to explain the results of recent retirement surveys. Interestingly, three in ten adults have expressed a desire to live in a larger house when they retire. The reasons for the existence of this significant minority group should be further studied; one possible explanation is that the tight property market causes these retirees to foresee a need to accommodate adult children who do not yet own a home of their own. Still, financial considerations may be the final arbiter of downsizing decisions. The same surveys have found that approximately one in five (22%) future retirees (regardless of whether or not ideally they would like to move to

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a larger property upon retirement) would ultimately opt to downsize anyway. The major reason for this is to eventually release the capital from a larger property in order to help with future expenses.

A final element to the post-retirement downsizing issue is that one in five urban future retirees would like to retire to the countryside. This reflects the high rate of migration to China’s cities over the last 30 years and the fact that many people would like to move back to their home villages when they stop working. Naturally property prices are significantly lower in rural areas so releasing the profit from a sold urban property to buy rural, and using the leftover to fund retirement, is a potentially viable alternative pension strategy for many. However, healthcare and other services for the elderly are less advanced and accessible in many rural areas so returning to the countryside may not always prove possible in reality. Alternatively, high numbers of “returnees” could create pressure in rural areas for better geriatric care and services.

2.2.2) Multi-generational Homes

A key Confucian tradition among Chinese households is that children should care for their elderly parents. Already multi-generational housing is a standard feature of Chinese urban life: overall, just over half of those already retired are living in multi-generational households with their children. Interestingly, however, younger retirees are more likely to live with their children than older retirees. In recent surveys, 69% of retirees aged 50-54 admitted to living with their children, a percentage that gradually drops down to approximately 25% of retirees aged 70 and above. This could be due to the fact that older retirees are more likely to require a higher level of care than children can provide, or to the fact that older retirees have older, more established children who are more able to afford to buy properties for their ageing parents to live in.

Multi-generational homes are common for more than one reason. Younger, working adults also often live with their parents until they are able to buy a home of their own -meaning they can still be living with their parents well into their twenties (42% live with their parents) or thirties (29% live with their parents). However, many in their forties, having bought a home, will again be living with their parents, who move to live with them after retirement. Approximately one third of working-age urban adults have their parents living with them.

While multi-generational homes may be a Confucian tradition, they can nevertheless raise a number of issues. Some are natural and household-specific, such as conflicts over the division of household chores and child-minding in a newly recomposed family. More interesting for the purposes of this study, however, are those difficulties that are systematically related to China’s ageing population. The combination of increasing longevity, urbanisation, and the decades-long one child policy means that traditional Confucian multi-generational homes are more prone to overcrowding than ever before. Parents and grandparents are more likely to survive into old age, and working-age children no longer have siblings with whom to share the burden of housing elderly parents. This difficulty is encapsulated by the 4-2-1 family structure. Further, as longevity increases, the elderly are increasingly likely to require higher levels of care than their children can provide in the home. The twin problems of overcrowding and the need for round-the-clock care from trained healthcare professionals point to the future unsuitability of the Confucian model of

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intergenerational housing for elder care.

2.2.3) The Retirement Housing Reality

Talk of downsizing, upsizing or even returning to ancestral villages is all very well but the reality is that, among those already retired, two thirds still live in the same home as they did before retirement. Only 5% of retirees have actually downsized their property, while over 20% claim to have upsized. It is not possible to ascertain whether some of these moves can be explained by retirees moving in with their children or grandchildren, or whether they represent urban retirees returning to the countryside. Interestingly, more than three quarters of current retirees have chosen to stay in the same neighbourhood they lived in while working. This suggests that return-to-the-farm type arrangements may be less common than perhaps anticipated by the Chinese government.

TABLE 6: POST RETIREMENT PROPERTY SITUATION CHANGES OF RETIRED URBAN CHINESE, 2012 (%)

Same house/apartment I lived in before 67

A new larger house/apartment 21

A new smaller house/apartment 5

In a care/senior citizens home 1

Other 6


2.3) Healthcare for China’s Elderly

The dismantling of state-run industrial companies over the last two decades has ended the cradle-to-grave benefits system known as the ‘iron rice bowl’. In its place came a market-based medical system many Chinese could not afford. The Chinese government has tried to improve the social security net in China, and key to that has been reform of the healthcare system. Part of the drive to create a fairer healthcare system has been to address the cost of healthcare born by individuals, and this is being done through the introduction of healthcare insurance. Under such insurance, the cost of prescription drugs should be partly met by a government subsidy, partly by insurance cover (either paid by social taxes deducted from wages or by post-retirement government/employer retiree healthcare coverage) and minimally out of consumers’ own pockets.

Yet, according to the Ministry of Health, some 36% of rural and 48% of urban people failed to seek medical treatment for ailments in 2008. This indicates that, even with such high

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rates of coverage, in real terms provision is still insufficient to cover costs of medical treatment for many Chinese people. Though basic coverage may now include 90% of the population, according to the China National Health Services Survey for 2011, it is still the case that Chinese people will face increased healthcare costs as they get older due to an increasing incidence of health problems associated with old age. Under the current healthcare insurance benefits system they will increasingly see out-of-pocket spending from their pensions, needing to draw on their life savings or sell their homes in order to pay for expensive treatments. Retirees who cannot afford the high cost of healthcare will be an ongoing financial burden upon their families.

Research among retired people aged 50 and over shows that their primary concerns are in relation to health and mobility. However, one third of respondents (the highest response rate) say they are concerned that their pension will be too low for them to live on. For this group, concerned about their pension levels, the possibility of becoming ill with an ailment that would cost a lot in terms of care and treatment also means the possibility of becoming a burden on their family (28%). This explains why financial products such as long-term life insurance, private health insurance, private critical illness insurance and private savings plans are heavily subscribed to (see Financial Planning for Retirement section).

The general lack of appropriate state healthcare, despite reforms, means that many Chinese adults have to save heavily and plan ahead financially in order to create their own safety net for possible illness as they get older. This contributes to the large amounts of consumer cash locked up in savings accounts and out of the consumer economy. Chinese savers already suffer from “financial repression” – low or non-existent interest rates, combined with the limited range of personal financial products available- meaning that savings are a never-ending process for most Chinese and consequently an adequate retirement fund is difficult to achieve.

The Confucian ethic of filial piety, expressed in caring for elderly parents, remains a strong one in Chinese culture. Despite the “4-2-1 phenomenon” (each single child is responsible for two parents and four grandparents) it seems the government will largely seek to rely on the tradition of children caring for the elderly remaining strong. The Ministry of Health has stated that, as far as care for the elderly is concerned, they envisage 90% of care being home-based (i.e. within the family largely), 7% being community-based and just 3% being provided by nursing homes or hospitals. The basic concept of “9-7-3” has now been enshrined and has not changed for several years. These percentages are thought to be based on the experience of Singapore, obviously a much smaller, wealthier country that has a longer history of healthcare reform and an active immigration policy to replace lost younger workers. Even with these significant advantages Singapore has struggled to provide this amount of home-based care, indicating that the task could be impossible for China.

The ongoing importance of filial piety means that it is often children who pay for their aging parents’ healthcare and medication. The responses below are from people with retirement age parents in urban China:

TABLE 7: WHO PAYS FOR WHAT IN CHINESE HEALTHCARE? (%)

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Prescriptions Hospital Fees

Children/offspring pay proportion of costs 45 45

Elderly parents pay proportion of costs themselves 37 35

Third party pays (insurer, state insurance etc) proportion of costs 44 45

Source: Sampling Survey of the Status of the Elderly in Urban and Rural China

2.3.1) The Breakdown of China’s Confucian Compact

Although filial piety remains valued in China, the breakup of traditional extended-family networks due to work-related migration means the Confucian welfare support system that used to maintain the elderly has disappeared. China’s economic development now means that many people live far away from their parents, and this duty becomes increasingly difficult to perform. In addition, the effects of the one-child policy means that many only children are left with the burden of caring for elderly parents by themselves, and this creates a situation where traditions like filial piety are becoming increasingly untenable.

The breakdown of the traditional system for aged care creates a void to be filled by state-funded welfare support. More elderly people in China will have to find places in retirement homes, yet not enough retirement homes exist for the numbers of retirees, with places currently oversubscribed and costs high. This will perhaps be one of the most significant future opportunities in the services sector in China in the coming years. Besides the additional expenditure required to provide such government services, both nationally and regionally there is the mounting strain on the resources of China’s huge bureaucracy. In order to cope with increasing age-related health problems, China’s government system will need to balance changes in policy and administration with local government priorities, often at odds with those of the central government. This is a potential source of friction in China’s political sphere.

2.3.2) China’s Healthcare System

The ruling Communist Party knows that healthcare is in crisis and has plans to overhaul the system. The benefits of successfully managing this overhaul will be multiple: the goal of what the Hu/Wen leadership called a ‘harmonious society’ will be closer to achievement, the CCP’s “performance legitimacy” gained by delivering improvements in the standard of living will be solidified and perhaps they can convince Chinese families to stop saving at such high rates and start consuming more with all the knock-on benefits to the economy that would entail.

The problems in the current system are myriad and include the wide discrepancy in service and availability levels between China’s rural and urban areas. However, the biggest changes in recent years have occurred in cities, where the fear is no longer that treatment won’t be available – it usually is - but that it will come at a high price. The small social security net provided (the Basic Medical Insurance (BMI) programme, available in all Chinese cities since

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1998) rarely extends to anything beyond minor ailments. This has led to notorious press reports and TV investigations into massive bills run up by sick people in hospital – bills that, at best, have sent their families digging deep into their savings and, at worst, bankrupted them completely. Ill health is Chinese society’s greatest fear and accounts for the saturation marketing and sales of supposedly preventative medicines, including everything from vitamins, to tonics, to traditional medicines. Keeping healthy in China is synonymous with keeping wealthy.

Despite these fears, the system has improved in some areas, for instance, government funding for healthcare increased significantly between 2002 and 2004, largely to help improve the system of countering epidemics in the wake of the SARS crisis. Between 2002 and2005, the average time it took for a report of a new case of one of China’s 37 major communicable diseases from the county level to the central government fell from 29 days to just one day. Average Chinese life expectancy remains higher than in Brazil, India or Russia, while detection rates for communicable diseases such as tuberculosis (TB) are far higher in China than other developing countries.

Indeed, China’s success in tackling TB demonstrates the success of past systemic planning, as well as the need for a radical overhaul of the present system. As China’s leading infectious disease, TB was a major cause of death, but between 2002 and 2005 the detection rate for TB shot up from 30 per cent to 80 per cent. Thanks to government guidelines to healthcare workers and a massive increase in anti-TB programme funding, the detection rate is now in excess of 80 per cent and the treatment rate approximately 95 per cent. The fight against TB showed that the Chinese healthcare system could gear up and tackle a major communicable disease, but, arguably, that is what the healthcare system has been able to do since 1949. The same health care system has used mass campaigns to great effect in identifying and tackling communicable diseases such as malaria schistosomiasis (snail fever) and syphilis, as well as outbreaks of infectious disease epidemics. Despite this, to date, the system has not shown itself similarly capable of tackling non-communicable and lifestyle diseases as successfully. As the China Economic Quarterly noted in a recent survey of China’s healthcare landscape:

Citizens do not receive, on average, objectively worse health care than they did in the past. It is more accurate to say that the health care system has failed to keep up with rapid changes in the nature of demand.

It is also worth noting that many of these successfully-tackled diseases were concentrated in China’s rural areas or poorer urban communities. As diseases such as TB and malaria become ever rarer in China, the growing areas of healthcare demand will be non-communicable and lifestyle diseases affecting a more affluent, urbanized society – heart disease, cancer and diabetes, for instance. Furthermore, as these patients enter the system they will demand far higher levels of care and treatment than previous heavy users of the system, while their ailments will increasingly be chronic. These diseases of long duration and slower progression will invariably cost more to treat in terms of medicines, healthcare worker time and facilities.

2.3.3) Provision of Geriatric Healthcare

China arguably faces a crisis in geriatric healthcare. There is a lack of dedicated geriatric departments across China. The few specialist departments of geriatrics that do exist, such as

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those at the Beijing and Chengdu hospitals and the Department of Psychogeriatrics at Shanghai Mental Health Centre, were all founded within the past 10 to 15 years as some officials of hospitals or universities became aware of the needs of an aging population. However, there are still only a handful of formal geriatric fellowships and national board certifications in geriatrics compared to more-established specialties such as cardiology and paediatrics. Typically, directors and other doctors within the few existing dedicated geriatric departments are specialists in other non-geriatric areas (e.g. cardiology, pulmonology and psychiatry). This problem is currently beginning to be addressed, and geriatrics departments are reportedly training future specialist geriatricicians, but encouraging young residents to specialise in geriatrics is proving difficult as opportunities for additional income are seen as minimal compared to other disciplines and resources for equipment, training and support are limited.

The most established and best, in terms of reputation, geriatric departments have developed out of the growing need to care for retired government officials, senior People’s Liberation Army (PLA) personnel and elite professionals (e.g., university professors) who have private and privileged access to hospitals and clinics reserved for them only. Extending the level of privileged geriatric care provided to this elite group of the Party-State in China across the wider healthcare system would be difficult. Clearly as China ages there will be an urgent need for more education in the areas of aging and care of frail older people for both physicians and nurses, as well as other healthcare professionals including dieticians, physiotherapists, mental health workers etc. Some of the challenges will include relatively basic implementation of education and training to teach standard geriatric practices (e.g., learning about falls prevention, polypharmacy, etc.), not just about age-related diseases common in older people (such as ischemic heart disease or cancer). There will also need to be greater development of certifying organizations to ensure that minimum qualifications for future geriatricians are met; and moves towards the eventual transition from non-geriatricians to geriatricians as directors of geriatric departments.

2.4) Provision of Long Term Care for the Elderly – the “9-7-3” Concept

2.4.1) Home-Based care – the baomu system

As noted previously, the Ministry of Health has stated that, as far as care for the elderly is concerned, they envisage 90% of care being home-based, 7% being community-based and just 3% being provided by nursing homes or hospitals. Given the size of China’s aging population, this is clearly ambitious despite the cultural background of Confucianism. Without continued growth in the level of "informal" support, the burden of caring for older people on the state system will increase. However, the informal system will still require many working-age people to become primary carers for their aged parents. It will also become expensive for families forced to hire outside home help due to the demographic fall in available labour among the younger age groups able to take on this work. This is without taking into account the ability of untrained “carers” to adequately cope and provide a decent quality of life for the elderly.

One aspect of home support that is likely to grow concerns the practice of hiring live-in housemaids (baomu) to help. While this kind of home care is currently be considered a luxury available only to a small percentage of the Chinese population, it is likely to become a more important element of Chinese eldercare as the effects of the 4:2:1 phenomenon

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persist. While the expansion of the baomu system may be part of China’s ongoing elderly care system, in order for the system to safely meet growing demand, training and certification measures will need to be introduced and enforced. Another challenge in preserving this part of the healthcare system is how to assist the older relatives of the baomu who, because of her employment, is less available to her own relatives. It is also not clear whether the supply of service workers, such as the baomu, will be able to keep up with the demand for care of older people as the population pyramid changes between now and 2050.

In this sense the government’s debate and China’s demographics and shrinking labour force have not meshed well. The government has talked of old age care as often being provided in cities by women from the countryside – a migrant worker army of live-in maids, similar to the preponderance of domestic workers – “ayihs” – used for home chores and childcare. However, the changing demographics mean there are fewer women available to move from the countryside to the city and that many of them have no interest, or crucially training, in elderly care. In addition, the baomu system as it currently stands makes no distinction between domestic assistance (of the sort provided by a maid) and elderly care (of the sort provided by a nurse). The enduring perception in China that elderly care involves little more than helping with the washing, cleaning and cooking shows the gap in the understanding of what the real long term needs of the elderly are now, and are increasingly going to be, in China. Possible detriments to the elderly’s quality of life due to lack of professional care or being based in inadequate living facilities (overcrowded, unable to use lifts or stairs to exit buildings, etc.) is an area that has not been addressed in government debate on the elderly, despite the emphasis continually placed on at-home familial support systems.

2.4.2) Retirement Homes – Scarce but now Acceptable to More

Retirement homes are a relatively new phenomenon in China. While many still insist that care can take place within the home, the reality is that additional care homes, retiree villages, old people’s homes, etc. will be required. As people live longer, rates of age-related symptoms such as dementia and incontinence rise. All these ailments and conditions make remaining in the home (typically small, shared and in a high rise apartment block) additionally problematic and increasingly impossible. In the past, many people believed that putting their aged parents into a home would lead to criticism. This perception has, however, largely changed and retirement homes have increasingly been interpreted as an acceptable way of fulfilling the filial obligation of providing good quality care for parents. Hence, the need to address the retirement home issue.

The vast majority of retirement homes now appearing across China are privately run and expensive. The number of government run homes (even including those exclusively for senior Party cadres or senior PLA officers) is minimal with extremely long waiting lists. According to a report in the Beijing Evening News more than 10,000 applicants are waiting for the 1,100 beds on offer in the capital's state-run No. 1 Social Welfare Home, where only approximately a dozen places become available each year. This public care home charges between 83 euros (RMB685) and 420 euros (RMB3,468) a month for a place, making it extremely popular. Still, homes like No.1 Social Welfare Home are rare and most people wanting to use care homes for the elderly will need to pay considerably more and enter the private system. Private care costs can be significantly higher. According to the Beijing Municipal Civil Affairs Bureau, the organisation technically responsible for the oversight of

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private care homes in the capital, they can easily run to 2,500 euros (RMB20,642) per month; far beyond the financial capacity of the vast majority of Beijing residents.

As a measure of state provision vs private, Beijing, the best-prepared city for retirement care homes in China by far, has 215 state-run public nursing homes and 186 private homes – approximately three beds for every 100 senior citizens, compared with over eight in the UK (according to the Care Quality Commission’s ‘State of Health Care and Adult Social Care in England 2012/2013’ report). Official records from NBS show that the number of available beds in nursing homes now open in China can only cater for 1.8% of the country’s elderly population, whereas the standard in many Western countries is between 5% and 7%. Li Jianguo, vice-chairman and general-secretary of the Standing Committee of the National People's Congress acknowledged this, telling the Congress, "We'll need to increase the number by 3.4 million beds to accommodate 3% over the next five years." At present it is also the case that retirement homes are not distributed evenly across the country but tend to be near big cities and largely in the southern province of Guangdong. Here Hong Kong private operators have been able to spread their operations easily across the border into mainland China but have concentrated on the neighbouring province of Guangdong rather than nationally. Part of the reason for this, and a further element clouding the statistics on the provision of elderly care in mainland China, is that many of the places in Guangdong nursing homes are taken by Hong Kong residents seeking lower cost care. Though the actual number of available elderly nursing home beds in Guangdong occupied by Hong Kong citizens is not officially recorded, a report in the mainland Chinese newspaper The Global Times estimated it at a third of all available beds.

TABLE 8: PLANNING FOR PARENTS’ POST-RETIREMENT LIFE, 2012 – WHAT CHILDREN OF ELDERLY PARENTS ARE PLANNING (%)

Making financial plans for a retirement home for parents 29

Planning to buy bigger home so parents can move in too 22

Like idea of retirement home but unsure how to afford it 21

Not thought about this subject yet 16

Parents will live with children to save money 10

Cannot afford either options 2

Source: Sampling Survey of the Status of the Elderly in Urban and Rural China

2.5) Pensions

For generations of farmers, sons have been their pensions. Family-based welfare lives on in rural China, encouraged by the state, yet tradition is no guarantee for the future. Historically strict birth-control policies, the changing nature of eldercare, and changing social mores mean that parents are less and less able to depend on their offspring for support in their old

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age. Similarly, in the cities, the dismantling of the “iron rice bowl” system post-1978 meant that urban Chinese could no longer rely on their employer to provide cradle-to-grave care. Due to demographic change China will now have a significant growth of pensioners long before it has fully developed economically and created the means of looking after them. The intergenerational care model is not adapted to China’s demographic realities, and the government has attempted to engineer reforms to fill these welfare gaps.

China set up a national pensions fund in 2000, a welfare support system that is perhaps the most enduring legacy of the Hu-Wen administration. Just a decade ago, only 55 million rural residents and 147 million urban employees had formal pensions; in 2013 approximately 800 million rural and urban residents have old-age insurance of one kind or another. However, only about 365 million people (overwhelmingly urban) currently have a formal guaranteed pension (as opposed to a more basic “savings pot” that can be eroded by inflation). Rural pensions in particular are rarely generous. The typical savings scheme requires a contribution of RMB 100 (12 euros) a year during the working life into the rural pension scheme which will mean the saver will qualify for a monthly payment of RMB 55 (6.6 euros). Other pension systems and savings rates are available and certain groups, notably retired soldiers and Party cadres, get top-up amounts, but this is the average rural state pension payment and return deal. China’s pension system is currently under massive reform, but the social security net still has large gaps in it, and these continue to leave significant concerns for the elderly and those planning their retirement.

It is estimated that even the current system of basic, cheap pensions, with non-universal coverage has created an unfunded national pension liability roughly 150% of China’s GDP. Almost half the (separate) pension funds run by China’s 32 provinces are reportedly in the red (according to the National Bureau of Statistics), and many of China’s social protests can be traced back to unpaid pensions.

China’s low (by international standards) mandatory retirement ages may be placing unnecessary strain on the pensions system. Currently the retirement age to receive a pension is 60 for men and 55 for women. Raising the retirement ages to remove this strain could worsen China’s problem of youth unemployment by preventing older people vacating suitable positions. In 2012, 4.13 million young Chinese graduated from universities, and fully 30 per cent of them remain unemployed (some sources believe the rate is higher and covered up by many simply not registering for work while unemployed). Unemployment is also high among youth who are not university graduates. Prolonging employment for older workers would make this predicament worse. Beijing has also considered lowering retirement limits to create work for younger people but the concomitant strain on the pensions system is a concern.

Table 9: CHINA’S URBAN AND RURAL POPULATION AGED 60+, MAIN SOURCE OF SUPPORT, 2012 (%)

Cities Towns Rural Total

Own labour income 6.9 31.7 51.3 36.7

Family 20.5 41.0 40.5 35.7

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Pension 68.4 21.4 4.1 23.1

Welfare 2.1 3.1 2.3 2.4

Other 2.1 2.9 1.8 2.1

Source: National Bureau of Statics (NBS)

It seems that, while there have been a lot of media reports about China’s pensions shortfall, many Chinese are still not providing adequately for their old age. According to research from the market research firm Mintel, half of adults aged 20-49 are planning to retire at the state pension age. However, almost one tenth of respondents had not really thought about when they would retire and nearly one fifth felt they would still be working past the state retirement age. Mintel have also noted that, “There is much greater optimism among younger respondents about being able to retire before the state retirement age, while older respondents seem to be more realistic in acknowledging that they will only be able to retire at or after the state pension age. Slightly more men than women of all age groups indicate that they expect to still be working after the state retirement age, suggesting that women feel less pressure than men to continue working to provide a salary.”

2.5.1 Pension Coverage: Far From Universal

The latest available government data shows that about 800 million people are now covered under some kind of government pension scheme. According to the Ministry of Human Resources and Social Security, by the end of 2011 some 326 million rural residents had been enrolled in a public pension. However, this still leaves 600 million, largely rural, people without coverage. Data from China’s National Bureau of Statistics shows that 68% of the urban Chinese population is now contributing to basic pension insurance. It is hoped by the central government that the uptake of pension provision will mean that greater numbers of the elderly will become more financially independent and have more of a social safety net than before.

2.6 Attitudes of the Elderly and Self-Protection Strategies

According to NBS surveys of over 50s, the two major concerns of China’s elderly, and of those that must support them in the future relate to healthcare provision, and access to adequate and reliable pensions. Fully one third of respondents report concerns that their pension will be too low for them to live on. Additionally, just under a third of over 50s worry about the possibility of illness because of the burden that the cost of care and treatment would place on their family. The source of retired peoples’ concerns about health can thus be seen to be linked to their worries about financial self-sufficiency, making financial concerns the single largest worry of China’s elderly.

TABLE 10: MAJOR CONCERNS OF CHINA’S ELDERLY, 2012 – ASKING THE RETIRED WHAT WORRIES THEM? (%)

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Illness 65

Healthcare costs 36

Ability to look after self 35

Reduced mobility 35

Pension too low to live on 33

Becoming a burden on family 26

Spend all savings 12

Inadequate living accommodation 10

Losing dignity in society 10

Source: National Bureau of Statics (NBS)

NB: Respondents were asked to include all concerns that they had

2.6.1) Financial Planning Strategies among China’s Pre- and Post-50 Retirees

The reality of the lack of an effective social security net for Chinese people combined with repeated proclamations by the central government that people/families will largely have to look after themselves in old age has clearly shaped the way they act as consumers and financial planners. Despite some reforms to the social security system, progress is slow, and most Chinese people understand that they need to rely on themselves, and more specifically on their savings, to provide for their future financial needs. Repeated surveys indicate that people are aware of the need to save more for retirement, but actual rates of saving are not necessarily commensurate. For instance, according to a survey by the QQ company in China over 90% of 25-49 year olds say that they plan to start saving money or investing in long term life insurance, private health insurance, or critical illness cover, yet the rates of actual investment and participation in these insurance schemes are significantly lower at 48%, 78% and 58% respectively. Additionally though rates of participation in private health insurance may appear high these are rarely comprehensive and often simply savings accounts that are termed “private medicine’. These are designed to provide money for one-off treatments or payments rather than fund ongoing care of the type that will more often be required in the future as Chinese people continue to have more chronic, age-related conditions.

Among the over 50s, the largest participation is simply in savings accounts (over 75%) rather than specific financial products, such as insurance policies or private protection plans. This reflects the nascent state of the financial services industry in China and the relative lack of effective post-retirement healthcare and pension savings financial products and savings vehicles available to Chinese investors. Extremely low interest rates (often negative at times) have meant that intense long-term saving is required for most people to reach their pension and/or healthcare-welfare goals. Thus, while general savings rates remain high in China,

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targeted saving is still less active due to a lack of suitable financial products. Additionally, savings for specifics – i.e. old age – is often starting too late given, again, the poor interest rates and the lack of products. Investment levels are generally higher among the older consumers who are closer to reaching retirement age and more acutely aware that they need some kind of provision in place, and who are more likely to have already made investments to care for retired parents. However, starting late means reaching the goals required is problematic.

Additionally, the popularity and reputation of life insurance can be a problem in attempting to persuade consumers to choose other, more targeted financial products. Matthew Crabbe of Access Asia research in Shanghai comments on insurance: “Long-term life insurance shows a lot less significance as a financial tool among both genders than critical illness cover. Covering the cost of significant illnesses is a big worry for Chinese people, given the lack of public healthcare cover, especially as limits set on pay-outs on treatment are often woefully below the actual costs.” He also sees a gender-aspect to the issue of insurance – “The sharp uptick in investment in long-term life insurance among women especially in their forties is probably due to the expectation that they will outlive their husbands, and be looking to provide extra support for themselves” Crabbe adds. With an insecure and often chaotic healthcare system still the norm for most people, ensuring protection while still alive and facing the possibility of illness is deemed more important than post-life insurance at present.

2.7) Conclusions and Policy Recommendations

China’s central and local governments as well as the Ministry of Health and other relevant bodies have shown themselves keen to learn from the experiences of other countries when dealing with the prospect and reality of aging societies. This has involved a number of visits by politicians and healthcare professionals/policy makers to various European countries to observe the ongoing developments in geriatric medicine as well as long term care for the elderly. Similarly the government continues to seek advice on improving and extending its pension provision to the entire population as well as developing a range of financial services products to help the non-retired prepare for their own retirement and care for their parents and dependents post-retirement. In general, as outlined above, China remains wedded to the 9-7-3 policy which places the emphasis on care in the home undertaken by family members and domestic workers. However, opportunities for both European care providers and healthcare companies exist in the emerging market for private care homes and geriatric services.

2.7.1) The Rise of Demand for Geriatric Care May Force Change in China’s Healthcare System

The current system that requires high out-of-pocket payments for healthcare is impacting a range of issues in China during its demographic shift. The traditionally high savings rate, low urban levels of disposable income, the threatened ability of families to look after their elderly members and the concerns of the elderly about their ability to look after themselves are all related to the high cost of healthcare. A hospital stay in China is among the most expensive in the world when compared to average earnings in China. What is required, and what the central government is grappling with, is a reliable health insurance system that both provides cover from cradle to grave – with old age as a growing component of that cover.

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Herein lies the dilemma for China’s healthcare planners. China’s economy and the success of its urban middle class, as well as those not quite yet raised out of poverty, is predicated on investment and job creation. To achieve this, the country needs to remain competitive and maintain the so-called ‘China Price’. The options for healthcare reform fall broadly into two categories and both, if mishandled, could cause far wider systemic problems in the Chinese economy:

1) A healthcare system based on insurance paid by individuals and company schemes – i.e., a similar system to that operating in the US. Putting aside the problem of what to do about people who can’t or won’t pay for medical insurance and then require treatment, it is clear that without significant government infusions of cash, the insurance premiums for such a system would be high and extremely burdensome on people. The inevitable result would be a demand for higher wages to meet these additional costs. That demand, if not met, would leave impossible numbers of people outside the system, but if met, would mean rising wages and the ‘blowing’ of the China Price, leading to a drop in investment and job creation. Additionally, requiring people to pay high insurance premiums for a healthcare system would, at best, just divert money currently being saved in bank accounts into premium payments and do nothing to achieve the government’s avowed intention of freeing up personal savings to drive up consumption. Requiring companies to contribute to additional healthcare insurance on their employees’ behalf will likewise increase companies’ operating costs and decrease China’s international competitiveness.

2) A socialised, or comprehensive service, healthcare system – i.e., one paid primarily through taxation, similar to the UK’s National Health Service (NHS), other European models and those operating in Canada, etc. A similar problem would occur here in that requiring people to pay higher levels of personal taxation would again lead to wage demands adversely affecting the China Price. Additionally, a core problem would be whether or not people felt they were indeed getting a fully socialized treatment-on-demand system, and if they were not, would probably still save for private health treatment at current rates, thereby not delivering the much desired consumption boom of released savings. Installing, funding and staffing a fully functioning national health service financed largely from taxation would take time and may not be immediately seen as an improvement nationally. It would mean that an effective two-tier system would operate with people continuing to demand pay for treatment alongside socialised coverage. It is also worth noting that most Chinese hospitals are busy places at the moment, and a socialized system that encourages people to seek treatment free of financial fears could soon overburden the existing healthcare infrastructure.

Ultimately, both broad forms of financing could have disastrous knock-on effects within the wider economy. There are also many problems that currently exist with the Basic Medical Insurance (BMI) system, especially regarding those who lack coverage, such as workers in short-term or irregular employment, many migrants, the nonworking members of families, and workers at firms that don’t enrol employees, claiming they can’t afford it. A more fully privatized insurance system would inevitably involve higher costs than the current BMI (which is a system that, by and large, requires the patient to pay and then seek reimbursement later) and presumably more companies would avoid the scheme while the low-paid, marginal and migrant workers would potentially find themselves even further away from healthcare than is currently the case. For those covered by BMI but unable to pay the upfront charge before being reimbursed, the system is next to worthless anyway; hence,

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once again, China’s high savings rate is a necessary coping mechanism to get around this flaw in the system.

2.7.2) Work for the Old – Second Careers in Legal Loophole

The Beijing government is actively investigating post-retirement careers and incomes as a potential solution to the shortfall in savings and healthcare coverage. While second careers are common in the West and are often embraced as a chance to satisfy long-held ambitions, for huge numbers of Chinese city dwellers eking out another decade or two of paid work can be crucial to funding their old age. According to a study published in the October issue of the Journal of Occupational Health Psychology (published by the American Psychological Association), and widely reported and commented upon in China’s media, older people who hold temporary or part-time jobs after retirement enjoy better physical and mental health than those who stop working entirely. Additionally they retain the ability to continue saving through their wages.

66% of Chinese responding to a survey by Aetkins, an insurance company, wished to work post-retirement. However, while some companies have actively sought to employ older workers, including companies such as McDonald’s and Tesco, Chinese law is complicated when it comes to providing them with benefits and labour law protections beyond the official retirement age. This is mitigating many older people’s desire for a second post-retirement career. When workers in China reach the statutory retirement age they are no longer technically workers. Under Chinese law, they are deemed not to have an “employment relationship” (劳动关系) and are instead categorized as labour service providers (劳务关系), similar to domestic helpers etc. The consequence of this is they are no longer automatically entitled to the employee benefits and protections according to China’s labour laws, including overtime and severance pay but also, crucially, pension and medical insurance benefits. This situation technically persists today, making it undesirable for many older people to continue working and for employers to hire them. There have been suggestions that older workers should be considered as employees and not as labour service providers but this is not yet enshrined in the labour law.

2.7.3) Promoting Comprehensive Pension Reform

According to a report by Qinghua University released in August 2013 and looking forward at China’s pension system in 2035 (by which time there will be one dependent person for every two to three Chinese workers), “China is already 15 years behind in terms of restructuring its pensions.” One of the biggest challenges for the Xi Jinping leadership will be designing a welfare system that is both comprehensive and equitable. The present system is fragmented, inflexible, hard to administer and tough to navigate. In addition, the current system’s inconsistent approach to welfare entitlements, especially the generous benefits given to government employees, breeds resentment and inequality. The urban pension system alone has different systems for civil servants, workers in public services, urban employees and urban residents. Effectively the pension for public servants is two or three times higher than for other urban residents, according to Yang Lixiong, deputy director of the China Social Security Research Center at Beijing’s Renmin University. The Social Insurance Law, passed in 2010, took some initial steps towards ironing out the contradictions within the system. But this was more of a statement of principles than a clear set of rules to create a fairer system.

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China is poised to reform its pension system once again – probably announcing the reforms by the end of 2014 While the final details of this new phase of reform are not concretely known, it is expected to include merging separate state and private sector employee pension schemes, increasing coverage and broadening the range of assets pension funds are invested in to boost returns and improve efficiency. All of these would be welcome moves. Merging civil servant and private sector pension schemes, and taking the latter out of local government control, will be difficult as it requires overcoming opposition from civil servants. However, if it can be achieved, centralising pensions into national funds would improve the efficiency of resource allocation and smooth the regional disparities that currently result in some provinces having pension surpluses whilst others have huge shortfalls. It should also help improve administration of funds, which according to the Chinese Academy of Social Sciences, has been patchy due to variations in the level of experience of officials from different provinces.

2.7.4) Help with Cleaning-up the Welfare System

China acknowledges that its attempts to improve its social welfare system have been hampered by graft and corruption. Scandals around the misuse or theft of pension funds have become serious political issues for Beijing. This problem goes back to at least 2006 and the well known Shanghai pension fund scandal which resulted in the dismissal of several senior Chinese Communist Party officials. The case involved allegations of the misuse and illegal investment of about one third of Shanghai's RMB 10 billion social security fund in various real estate and road projects. In 2012 an investigation of 18 social security funds by China’s own National Audit Office found that RMB 3.6 billion (431 million euros) of payments had been siphoned off for other purposes — ranging from car purchases to unrelated government investments — or to unqualified individuals. The government’s current anti-corruption drive may net some of the worst abuses, but it will be hard to contain the creativity of venal officials. An effective social-safety net will depend on better monitoring of local officials and more input from ordinary people, according to Chak Kwan Chan of Nottingham Trent University. Whether leaders are willing to increase public oversight, and whether local cadres will comply, remains to be seen.

2.7.5) The Western Care Home Experience – Lessons for China

As China ages so the number requiring professional care homes will also increase. China knows this is coming - according to the China National Committee on Aging (CNCA), nearly 50% of the oldest seniors (80-plus years) are unable to take care of themselves currently and this age group is set to grow in the coming decades. As previously noted, Li Jianguo, the vice-chairman and general-secretary of the Standing Committee of the National People's Congress, has said, "We'll need to increase the number by 3.4 million beds to accommodate 3% [of China’s elderly] over the next five years." This is already a large task, but 3.4 million beds may not be enough. Wang Hui, director of the Department of Social Welfare and Charity Promotion under the Ministry of Civil Affairs, told participants at the Sino-Japanese Symposium on Aging in September 2013 that China needs about 10 million nursing home beds in total.

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The 2012 Sampling Survey of the Status of the Elderly in Urban and Rural China conducted by CNCA indicates that 11.3% of urban senior citizens and 12.5% of rural senior citizens are open to the idea of institution-based care. To date, nationwide elderly care beds total about four million. However, many of these facilities have been criticized for inefficient management and poor services by, for example, the National Development and Reform Commission's Social Development Institute. The institute's report on the state of nursing care in China exposed a lack of competition among service providers and a need for performance-based salary structures covering employees at state-run nursing homes. Without these and other changes, the report said, nursing care would continue suffering from slipshod management, overstaffing and rigid operations.

The opportunities for private operators exist at a variety of levels:

High-end care homes mainly target healthy seniors, offer group living, outsource most services, and usually only offer basic medical care.

Comprehensive senior communities often target seniors who wish to live independently, providing them with residential apartments and creating an inclusive community and a comprehensive set of facilities and infrastructure including banks, supermarkets, and post offices.

Affiliated senior apartments provide an elderly friendly layout and design and have been recently introduced to the market through developers who target independent seniors that would like to live close to their children.

Destination resort senior sanatoriums offer a model in which seniors can choose a destination with very limited elements of senior care.

High-end nursing homes target seniors that need assisted living or nursing care and often contain internal hospitals to provide medical services to residents.

To date many private enterprises have not been willing to invest without evidence of profit potential based on market demand. Put bluntly, private healthcare companies need to see that there is money in elderly care before committing to this specialisation, as opposed to more proven profit generators, such as private cosmetic surgery provision. Given the fact that many senior citizens have limited financial resources the private sector has so far shown little interest. To attract private capital attached to the care home industry Beijing is exploring asset securitization and exit mechanisms for funds to hopefully encourage such investments. The aim is to encourage marketization alongside government support and subsidy. For instance, the State Council has said that nursing homes must be included whenever a new urban area is built. Existing urban and residential areas are also required to add facilities through various means. The idea is that gradually these services could be absorbed into the facilities run by enterprises though built initially by the government. The evolution of the hotel industry in China could provide a useful model for the government as it looks to promote growth of the aged care sector. Over the past 30 years, the industry has shifted from one based on state-run guesthouses to a vibrant sector with a wide variety of consumer-oriented hotels catering to every taste and budget. The government could follow this model to encourage aged-care industry growth by lowering utility bills and other costs for new care home facilities.

2.7.6) The experience of Training and Supporting Carers and Home Help

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At the same time as China requires more care home beds it also requires more certified caregivers. Unfortunately, in-home care providers (baomu) are currently rarely able to offer skilled medical services—a key requirement. At present most in-home care providers are provided via private agencies rather than the national health service. Many trained nurses are loathe to leave the state service to work in the private sector due to reasons of job security, even though the pay is generally better in the private sector. The lack of qualified elderly care givers is acute. Dr Du Peng, director of the Institute of Gerontology at Renmin University in Beijing has stated that, “We (China) have four million beds available, one caretaker for every three elderly. We should have more than a million caretakers, if in the future we will have 30 million elderly then we need 10 million caretakers. But at the moment in China every year only 6,000 gerontology professionals are certified.” With more private companies entering the elderly care market and operating care homes and at-home services there is now a bottleneck in the number of qualified at-home care givers available. This will ultimately make the government’s 9-7-3 ratio of care, with the emphasis on at-home care for the elderly, impossible to meet. Additional training centres, course, instructors and certification are urgently required.

3) Conclusion

The major problem confronting the Beijing government is that China is poised to become an aged society before it is rich enough to support an ageing population. The growing number of retirees and shrinking workforce add pressures and the challenge of caring effectively for the elderly is made more acute by China’s shrinking labour force. With increased longevity and low retirement ages at present China is about to face the problem of 50-year olds retiring with parents who are barely 70-years old, leading to families in which two generations are retired and under-funded for that retirement. At a time when the government is seeking to boost personal consumption, large amounts of income and savings will have to be diverted into care for the elderly, geriatric healthcare and medicines. If China’s government fails to find a solution, the economic consequences could be dire.

China’s population is aging but is not necessarily receiving the elderly care and geriatric treatment it should. At present, a meagre 2% of China’s senior population chooses institution-based care – even with the stigma associated with retirement homes largely removed, the availability and affordability of places is minimal. The government would like to see these numbers rise as indicated in its latest Five-Year Plan (2011-15), which aims to provide institution-based care to 3% of the total senior population—or about 3 million people—by the end of 2015. Providing quality of life for China’s elderly will require the success of the current economic reforms to create jobs, maintain wage rises, allow for continued savings and also permit a more regulated and participatory tax base to allow for additional government spending on geriatric care. Projections suggest marginal surpluses in the state urban-based pension scheme until 2018, but deficits thereafter. Arguably there are already major deficits in the majority of rural schemes. It is impossible to divorce China’s demographics from its macro-economics – a secure and pleasant old age will, for most Chinese, depend on continued economic growth.

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· Web viewAuguste Comte, the father of sociology, famously said, ‘demographics is...

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Transcript of · Web viewAuguste Comte, the father of sociology, famously said, ‘demographics is...