China’s Social Reform and
Re-building the Welfare System
Lu Mai
Secretary General
China Development Research Foundation
Content
• China’s Economic Growth and Social Development
• Revamping China’s Social Security System
–
–
–
–
–
Poverty Reduction
Education
Old-age Support
Medical Care
Housing
• Characteristics of the Chinese welfare system and
Difficulties in Revamping it
–
–
–
–
Characteristics
Welfare policies towards rural migrant workers
Reforming public finance
Reforming government performance evaluation
• Conclusions
2
I.
China’s Economic Growth and
Social Development
China’s economy has been growing rapidly since the start of
reform and opening in 1978.
GDP in 2005
(Trillion US$)
GDP of China (1978-2006)
(100 million Yuan)
100000
0
3645
4546
9016
18668
US
A
50000
60794
4.505
1978 1980 1985 1990 1995 2000 2005 2006
Year
2.781
2.229
2.192
2.11
Fr
an
ce
99215
Br
it
ai
n
150000
Ch
in
a
GDP
GDP
183085
12.455
Ge
rm
an
y
209407
200000
13
11
9
7
5
3
1
Ja
pa
n
250000
Country
3
China’s Human Development Index increased significantly.
Changes in China’s HDI
0.8
0.755 0.768
0.75
0.721
0.683
HDI
0.7
0.627
0.65
0.593
0.6
0.55
0.557
0.523
0.5
1975
1980
1985
1990 1995
Year
2000
2003
2006
4
Social reform and the rebuilding of the welfare system: a
matter of great urgency
•Income gap is widening;
•Employment uncertainty and insecurity;
•Underdeveloped social services;
5
Income gap is widening.
Gini Coefficient for China’s Income Distribution
0.50
0.45
0.40
0.35
0.30
0.25
0.20
'81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01
Year
6
Human development gap between town and country is widening
Trend of Changes in National, Urban & Rural HDIs
(1990-2002)
National
Urban
0.85
Rural
0.80
HDI
0.75
0.70
0.65
0.60
0.55
1990
1991
1992
1993
1994
1995
1996
Year
1997
1998
1999
2000
2001
2002
7
Goal of social development:
•Common prosperity;
•Ensuring a comfortable life for every
Chinese; (2002)
•Harmonious society; (2006)
New phase in China’s reform and opening:
social reform and revamping of the welfare
system
8
Content
• China’s Economic Growth and Social Development
• Revamping China’s Social Security System
–
–
–
–
–
Poverty Reduction
Education
Old-age Support
Medical Care
Housing
• Characteristics of the Chinese welfare system and
Difficulties in Revamping it
–
–
–
–
Characteristics
Welfare policies towards rural migrant workers
Reforming public finance
Reforming government performance evaluation
• Conclusions
9
II.
Revamping China’s Social
Security System
Traditional social security system in China
State provision
Traditional
system
Enterprise provision
Rural collective
provision
SOEs reform
Collapse of people’s
commune
Since 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.
10
1. Poverty Reduction
– Reform of the economic and social system
has proven the most effective means of
reducing poverty in China;
– Two-pronged approach: development and
relief
11
1.1 Development policies
– Rural 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;
12
1.2 Relief policies
– System of subsidence allowances for the
urban poor (1999);
– System of subsidence allowances for the
rural poor (2004);
13
2. Education
• Improve 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.
14
3. Old-age support
3.1 Urban areas: “Three-Pillar Model”(1997)
–A mandatory publicly-managed pillar, a
mandatory privately-managed pillar and a
voluntary pillar
–issues：the 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;15
3.2 old-age security in the countryside（1992）
–Funded entirely by the individuals;
–Contemporary reform：allocate more funds
to subsidize rural endowment；
Besides, 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.
16
4. Medical care
4.1 Market-oriented reform
– Significant expansion of medical resources
and improvement in medical facilities；
– Problem：medical expenses grow faster than
personal income; a large part of it is borne by
patients.
17
4.2 Urban and rural medical care system
Basic medical insurance for urban
workers
Medical support and relief for the urban poor
The
unemployed
Insurance covering major illnesses of urban
residents
New-type rural co-operative medical
care
Rural
residents
Medical support and relief for the rural
poor
Commercial
medical insurance
Chinese citizens
Urban residents
The
employed
18
5. Housing
Housing 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;
19
Content
• China’s Economic Growth and Social Development
• Revamping China’s Social Security System
–
–
–
–
–
Poverty Reduction
Education
Old-age Support
Medical Care
Housing
• Characteristics of the Chinese welfare system and
Difficulties in Revamping it
–
–
–
–
Characteristics
Welfare policies towards rural migrant workers
Reforming public finance
Reforming government performance evaluation
• Conclusions
20
III.
Characteristics of the Chinese
welfare system and Difficulties
in Revamping it
1. Characteristics
–
–
–
–
A 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；
21
2. Welfare polices towards rural migrant
workers
–Still left to fend for themselves;
Urban residents
Rural residents
Migrant workers
Old-age security
Endowment insurance
Land
—
Medical care
Basic medical insurance
Co-operative
medical care
Subsidised treatment of
major illnesses
Education
Free
Free; subsidies
—
Labour protection
Industrial injury insurance
—
Industrial injury
insurance
Housing
Subsidies; low rent
Self-built
—
Poverty relief
Urban living allowances
Rural living
allowances
—
22
– 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;
23
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.
24
Government revenue increased rapidly.
Government Revenue of China (1978-2006)
(100 million Yuan)
50000
39343
40000
31649
30000
20000
13395
10000
1132
1160
2005
2937
1978
1980
1985
1990
6242
0
1995
2000
2005
2006
25
Government investment in development activities should be
reduced and spending on administrative overhead strictly
controlled.
Government Expenditure by Function
(100 million Yuan)
40000.0
35000.0
30000.0
Total Government Expenditure
25000.0
Economic Constrution
Social, Cultural and Educational Development
20000.0
National Defence
15000.0
Admininstrative Expenses
10000.0
Other Expenditure
5000.0
0.0
1978
1980
1985
1990
1995
2000
2005
Year
26
Encourage greater public participation:
Participatory Budget
Reform in China
27
4. Reforming government performance
evaluation
– Market failure vs. Government failure
– Experience of OECD countries be
introduced to China.
28
Content
• China’s Economic Growth and Social Development
• Revamping China’s Social Security System
–
–
–
–
–
Poverty Reduction
Education
Old-age Support
Medical Care
Housing
• Characteristics of the Chinese welfare system and
Difficulties in Revamping it
–
–
–
–
Characteristics
Welfare policies towards rural migrant workers
Reforming public finance
Reforming government performance evaluation
• Conclusions
29
IV. 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;
30
• 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.
31
Acknowledgements
CDRF has received generous support in its work from
the Government of UK and many British companies:
DFID
HSBC
Vodafone
BP
Shell
Rio Tinto
Anglo American
Tesco
Cambridge China Development Trust
32
Thank you!
[email protected]
www.cdrf.org.cn