Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting

Xiaoxing Liu, Ying Zhang, Lin Fang, Yuanxue Li and Wenqing Pan
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Xiaoxing Liu: Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China
Ying Zhang: Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China
Lin Fang: Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China
Yuanxue Li: Carey School of Business, Johns Hopkins University, Baltimore, MD 21202, USA
Wenqing Pan: Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China

Sustainability, 2015, vol. 7, issue 8, 1-19

Abstract: This study forecasts the liquidity gap in China’s pension scheme for urban workers in the context of an ageing population and the possible effects of recent governmental policies by constructing a basic pension model, including “old people”, “middle people” and “new people” and a simulation method. We find, firstly, that China’s liquidity gap of pension will reach its peak of approximately 13.11 trillion yuan in 2038. Subsequently, this gap will gradually decrease with growth in the mortality rate. Secondly, reasonable intervals for the replacement and contribution rates should be set at [0.417, 0.604] and [0.189, 0.262], respectively, to sustain China’s pension system. Thirdly, compared to increasing fiscal subsidies, an income doubling plan, raising the contribution rate, lowering the replacement rate and delaying the retirement age can significantly reduce the liquidity gap, although the policy costs are relatively high. A policy permitting families to have two children will increase the rate of reduction of the liquidity gap, but it cannot effectively narrow the gap at the peak moment.

Keywords: China’s pension system; liquidity gap; reasonable interval; policy effect forecasting (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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