Social security system in China: an example of social insurance in emerging markets
Introduction
Being the emerging market representative with the largest population in the world, China’s social security system has become a heated topic for academia. With its fast growth, China has become the second largest economic body in the world. Moreover, burdened by its large population, the country has still fighting its way to ensure high living standard of its residents (Bottelier, 1999). This paper will discuss the social security system in China, and try to use World Bank’s 5 pillar model to demonstrate the nature and structure of this system. Also, this paper will try to identify the strengths and weakness of the social security system and propose potential reform based on the above analysis.
Social security system in China
As one of the fastest growing country in the world, China enjoys the tremendous benefit from its economic growth. Being the second biggest economic body in the world, despite the recent gradual slowing down, China still manage to achieve 7.7 percent growth in GDP, under the pressure from both world and domestic economy downturn (Bottelier, 2002). According to the forecast, China will overtake the US and become the biggest economic body in the world in 2016 judges from the growth rate of China.
Figure 1
With the growth in China’s economy, the total revenue of social security is also evolving. However, the expenditure grows faster than the revenue of social security and exceeded from the year 2008. This is due to the demographic transition in China, caused by the staggering growth innumber of aged people and the One-Child policy by the government (Liu,2004). In the future, this transition will leave tremendous pressure on China’s social security thanks to the continuing growth of China’s elder population (Wang and Mason, 2004).
Figure 2
Figure 3
The social security system is based upon guidelines issued by central government, and administration of this system is managed at the local level (Zhao, 2004). The system is design as contribution PAYGO system for receivers. These are different type of social security in China: pension, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance. The housing fund, although administered in a similar manner, and regarded by workers as a form of social insurance, is not covered under the Social Insurance Law, and is administered instead by the Ministry of Housing and Urban-Rural Development.
Pension
Same as many countries, China use pension system to ensure citizens will be able to maintain decent living standard after they retired. In China, both employees and the employers have to contribute to pension system. Employees will contribute eight percent based on their individual wage, while the employer will contribute twenty percent based on the employee’s total wage. After retired, the pension will be divided into 120 instalment which paid out monthly during 10 years period. In addition to that, workers can also receive general pension which is payable until death. The retirement age in China is 60-years-old for men and 55-years-old for women.
Medical insurance
The medical insurance framework was established in 1998. Similar to the pension system, the medical insurance system combines individual account and pooled fund. Although the amount varies from region to region, generally employees will only have to contribute two percent of their salary into medical insurance and this contribution will go directly to their individual account. On the other hand, employers have to contribute about 12 percent of the employee’s salary and thirty percent will go to that person’s individual account while the remaining go directly to a public pool.
Unemployment insurance
Unemployment insurance was first put forward in 1999 under the ‘Regulations on Unemployment Insurance’ by State Council. Both employees themselves and the employers
