1. Population aging and pension systems : reform options for
China
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Author Info
McCarthy, F. Desmond
KangbinZheng
Abstract
Using an integrated simulation model, the authors estimate the scope and speed of
population-aging in China, the cost of supporting the old, and the impact of different
reform options and pension arrangements. Among their conclusions: The scope and
speed of population-aging in China make the present pension system financially
unsustainable, even assuming that GDP grows steadily in the long term. Moving the
retirement age back would provide a temporary fix for the current pay-as-you-go
pension system but would be politically viable only where there is great demand for
labor. Pension funds could be made more sustainable by increasing GDP growth,
raising contribution rates, or gradually reducing benefit rates. But the financial costs
and social obstacles of those reform options must be carefully assessed. Fully funded,
privately managed pension schemes might be feasible, but require a sound regulatory
framework and institutional infrastructure,including financial markets that provide
adequate savings instruments and insurance options. Pension reform is a long-term,
multidimensional problem involving economic, social, political, and cultural factors.
Governments should not focus only on taxes and transfers to redistribute income to
and among the elderly. Real income growth is needed to cope with poverty among the
elderly, especially in developing countries. To establish an adequate, efficient, and
equitable social security system, China must maintain long-term socioeconomic
stability and sustainable growth. China could improve the labor market by removing
management rigidities, facilitating human resource development, making labor
markets more competitive, improving the household registration system, improving
incentives, and rewarding hard and innovative work. To reduce unemployment, China
can create more job opportunities in nontraditional sectors, especially its
underdeveloped service industries. To shift jobs to the nonagricultural sector, it can
develop medium-size cities. And to cushion the impact of demographic shocks, China
should preserve traditional values and maintain family-community support. Drawing
on experience in Europe and Latin America, China should move toward a transparent
and decentralized system with 1) a fully funded, portable, defined-benefit pension
plan, designed to meet basic needs, and 2) occupational pension plans or personal
savings accounts to satisfy demand for maintaining or improving living standards.
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China Faces up to Aging Population
2005-01-07 09:54:23 Xinhua News Agency
The birth of a baby boy in Beijing early Thursday marks the day of 1.3 billion people in China, which might have
come four years earlier, and it shows that China has achieved favorable results in its efforts toward a low birth rate.
But, population officials and demographers still have much to worry about, such as the country‘s increasing aging
population.
It is estimated that the proportion of people aged 60 or older in China will rise from 7 percent now to 11.8
percent in 2020. And there will be more than 400 million people aged 65 and older and more than 100 million
aged 80 and older by the middle of this century.
In 2000, Beijing had 1.7 million people aged 60 or older, who took up 12.54 percent of the city‘s total
population.
The aging population poses a serious challenge to the support for the elderly, social security, social
welfare and services, Chen Yi, vice-chairman of the Beijing Municipal Old-age Association, told a recent
forum on population and development in Beijing.
Chen said that in 2000 every 100 working persons supported 28 people, including 17 children and 11
aged people in Beijing. In comparison with 1990, the number of children supported by every 100 working
persons dropped by 12 but the number of the aged being supported rose by two.
Chen said this reflected increasing pressure on supporting the elderly people in Beijing.
What is gratifying is that China has achieved marked progress in supporting and caring for the elderly people in
recent years.
The Ministry of Civil Affairs launched in 2001 a "Starlight Project" to build community-based services for elderly
people. The government has spent 13.5 billion yuan (US$1.63 billion) over the past three years in building 32,490
service stations, where elderly people can read books, play cards, do painting, practice calligraphy, have exercises
and attend lessons specifically for aged people.
Many Chinese cities have adopted preferential policies, under which elderly citizens can have free visits to parks
and free bus rides and enjoy priority to visit doctors, museums and cultural centers.
China promulgated the law on safeguarding the rights and interests of senior citizens in 1996.

3. Apart from government efforts, an increasing number of volunteers have joined in the efforts to support and care
for the elderly people.
In Beijing, there are 300,000 volunteers who have established one-to-one relationship with needy elderly people
and provide regular services ranging from washing clothes, cleansing houses and chatting with the seniors.
Some elderly people choose to spend their remaining years at "homes for the elderly" run by the government,
where they are well fed and cared for. In east China‘s metropolis of Shanghai, one out of six elderly people want to
live in "old people homes" with the hope of easing the burden on their children.
A survey shows that 16.8 percent of the income of urban senior citizens comes from their children.
Experts say that it is necessary to carry on the fine tradition of the Chinese nation that young people support and
take care of the elderly members of their families.
(Xinhua News Agency January 7, 2005)
http://english.china.com/zh_cn/living/leisure/11020506/20050107/12053408.html
China Faces
the
Challenge of
an Ageing
Population
Zhang
Benbo
According to internationally recognized standards, if people aged 60 and above
account for 10 percent of the population of a country or region, that community
is considered an ageing society.
In 2000, one in every 10 Chinese was 60 years of age or older. Those beyond 65
made up more than 7 percent of the national population. This phenomenon is
expected to continue for decades.
This is a sign that China is already an ageing society.
The increasing proportion of old people in the Chinese population has profound
economic implications for society and thus calls for corresponding policies and
measures.
Although the economic impacts are still not palpable, we have to move fast to evaluate
the situation and come up with appropriate countermeasures.
First, such demographic development will affect the pattern of labor supply.
As the proportion of elderly people rises in the overall population, the proportion of

4. older workers will grow.
In 1999, among the active labor force, those aged 45 or more accounted for 24 percent,
up from 19 percent in 1990. It is projected that the figure will soar to around 37 percent
by 2040.
The paramount challenge for an ageing community is how to support and care for these
vulnerable people. This will affect the present pattern of welfare for the elderly.
In China, the tradition still prevails whereby old people are cared for in the family home.
But this tradition will face stronger challenges in the near future without more
complementary measures.
The sharp decrease in the birth rate since the mid-1970s has resulted in a huge
number of one-child families. By around 2010, the parents of these single children will
be getting frail or senile, and the children will have to support their parents.
As senior citizens live longer, the extremely old will depend on their daughters or sons,
who will also become old.
Such changes will place considerable pressure on care in the family home.
Moreover, the number of retired people is expanding rapidly and expenditure on
pensions is growing even more quickly.
In 1978, there was one retired person for every 30.3 employees. In 1999, the ratio had
soared to one retired person for only 3.7 employees. If the current retirement ages
remain unchanged at 55 for women and 60 for men, the ratio may climb further to one
retired person for 2.4 employees by 2030.
At that time, the social-security fund for the elderly will be unable to make ends meet.
An ageing population also has potential implications for consumption and savings
patterns.
Based on the life-cycle theory, when the process of ageing reaches a certain degree,
the proclivity to save money will decrease and people will be more inclined to consume.
As families are one of the major sources of capital accumulation, this tendency will
somewhat erode the supply of funds for manufacturing.
In China today, however, people still tend to save for old age. The penchant toward
consumption among the elderly will be restrained to some degree.
To offset such negative effects, it is imperative to tackle the issue from different
perspectives.
First, the whole of society should foster a social environment that champions respect
and care for the old.
The elderly are still precious assets of society. They are still a driving force behind

5. social development.
In the long term, any policy in favor of the aged will eventually benefit the younger
generation and the middle-aged.
In addition, the legal system protecting senior citizens' interests and rights should be
perfected. It should cover such issues as the payment and distribution of pension
funds, fund management and supervision, enterprises' responsibilities for retired
employees, individual endowment policies, and medical services for the old.
Yet the basic prerequisite for dealing with the negative effects of an ageing population
lies in maintaining economic growth.
At present, the major cause of the so-called social-security crisis in some Western
countries is not the expansion of the number of people who rely on a pension. The real
culprit is slow economic growth coupled with high unemployment.
The cash pinch on social-security funds can be relieved by rapid economic growth.
In China, which is still a developing country, maintaining rapid and steady economic
growth is vital.
With abundant human resources and comparatively small social burdens, the first
decade of the 21st century is a golden time for the country to get ready for the peak of
the ageing population.
In tapping human resources, training opportunities should also be provided for the old
and middle-aged.
Under China's special circumstances, care in the family home should remain the basic
mode of care for the elderly.
Such a tradition has been preserved throughout East Asia. Under the huge pressure of
an ageing population, even industrialized countries have realized the flaws of solely
relying on the social-security system for elderly care and begun to encourage more
families to take part.
However, social services will gradually take responsibility for many functions still carried
out in the family home.
In big cities, the combination of care in the family home and community-based services
will help the urban-based old to live with ease and enjoy the love and care of both their
family and community.
However, the basic security umbrella for the old should still be a social-endowment
insurance network.
Based on the experience of developed countries, the government has a responsibility
to build a social-security system. But this alone is inadequate to support the old.
A multipolar security network -- including a government-operated public pension fund,

6. compulsory individual savings and a complementary voluntary endowment policy -- will
be the best approach for an ageing society.
This will help to divert the risks of complete dependence on the social-security fund and
make the fund sustainable.
(The author is an assistant researcher with the Macroeconomics Research Institute
under the State Development Planning Commission.)
(China Daily March 28, 2002)