Forced Savings, Social Safety Net, and Family Support: A New Old-Age Security System for China

Shuanglin Lin

Chinese Economy, 2008, vol. 41, issue 6, 10-44

Abstract: China's pension system comprises a large social account and a smaller personal account now largely vacant. The system is unsustainable due to population aging. Under this system, new enterprises subsidize old enterprises, rural participants subsidize urban retirees, and young and future generations have to pay the debt incurred by the current older generation. A new system consisting of forced savings, a government safety net, and family support is proposed to replace the current outmoded one. Since China's social security system covers only one-quarter of the labor force, the current deficit is not too large and can be paid off by using the assets of state-owned enterprises (SOEs). In recent years China's tax revenue has been increasing rapidly and can be used to repay the pension debt. In addition, since the government owns all urban land, government land sales can produce revenue for social security reforms. Finally, the government can achieve its goal of income redistribution within the current system by providing compulsory high school education, better urban transportation, better health care systems, and a better social safety net.

Date: 2008
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