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The Reform and Development of Social Security System in China PRC
                                                         1
                                    Professor Tan zhonghe




        Chinese governments pay high attention to the construction of social

security system. Since 1980s, with the fast development of Chinese

economy, and adapted to the needs of market-oriented system reform,

China reforms traditional social security system. Then, the social security

system in China has achieved remarkable success in institutions building,

improving mechanisms and structure, expanding coverage, raising

treatment level, and promoting the opportunity of everyone’s acquiring

social security fairly and equally. By the end of 2011, the goals of social

security development had been mainly accomplished, which is “making

social insurance, social assistance and social welfare as foundations, and

basic old-age pension, basic medical insurance and minimum living

standard security as key points.”



        1. Basic Situation

        1.1 The development process of social security system in China

        Starting from the founding of New China, the social security system

China has undergone the period of growing out of nothing, broadening

    1
      Professor Tan zhonghe,National Social Security Institute, Ministry of Human Resources
and Social Security of China PRC.
     Email:zhonghe2009@gmail.com.
    Address: Room 1205,      No.17 street West Huixin, Changyang District,Beijing,china,PRC
   ZIP:100029
                                            1
coverage from urban to rural, from workers to all other residents in urban

and rural areas. It can be divided into three phases in this 60 years.



      1.1.1 The Phase of Forming Labor Insurance

     From the initial stage of New China to the beginning of Reforming

and Opening-up, for adapting the needs of planning economy system, the

policies of low-pay, high employment rate, high subsidy and extensive

welfare had been applied. Urban citizens were taken all responsibilities

by the government and enterprises in employment, housing, pension,

Medicare, and enrolling of children nurseries and schooling. In rural areas,

farmers depend on their land and provided the aged in their families. The

five guarantees families (the aged, the infirm, the old,widows and

orphans) were guaranteed by the rural collectiveness. In add, the

government guaranteed urban families to gain certain necessities by the

way of “low price, implicit subsidy and allotment”. At that time social

background, the social security system played a positive role in

stabilizing the society. However, the dual problems of identity

discrimination and equalitarianism were brought about, which is that the

guaranteed subjects were mainly the people employed in public economy

organizations, and that the allocating methods were used by the rule of

equalitarianism mess.



                                      2
1.1.2 The Phase of Focusing on the Reform of Social Insurance

     From the initial stage of Reforming and Opening up to the year of

2002, when the 16th    National Congress of Communist Party was held,

surrounding the reform of state-owned enterprises and economy system

transition, China has explored the construction of social security system

which sharing the responsibilities among the state, enterprises and

individuals, according to the requirement of socialist market economy

system.

     First of all, public old-age pension for workers in urban enterprises.

In this phase, China has established the public old-age pension which

institutional model is the combination of “social pool”fund and “personal

accounts”. Both the employers and workers have the responsibility of

paying old-age pension contribution. The benefit level is related to the

contribution period. Thus, the incentive and constraint mechanism of

“pay more, get more” is initially established.

     Secondly, unemployment insurance. The unemployment insurance

of workers in urban enterprises was firstly built in 1986, at the time of

which called the “unemployment” as “waiting for employment” instead.

In 1999, the State Council issued “Regulations on Unemployment

Insurance”, which established the dual functions of unemployment

insurance of guarantying the minimum living standard and improving

employment.

                                     3
Thirdly, basic medical insurance for workers in urban enterprises.

China started the pilot reform of the institutional pattern of “social pool”

fund and “personal accounts” in certain cities in 1994. Then, in 1998, the

State Council issued decisions, which set the policies, institutions and

measures of workers’ basic medical insurance of workers in urban

enterprises. The reform of medical insurance of workers in urban

enterprises was fully activated.

     Meanwhile, the institutions of work injury insurance, maternity

insurance, minimum living standard security system for urban residents

and so on were also get development and improvement. However, in this

period, the construction of social security system in China was mainly

developed to take city as a center, and to take occupational workers as a

key point. So the social security for the rural and the poor was not

comprehensively designed and considered.



     1.1.3 The Phase of Institutional Innovation Characterized by

Balancing Urban and Rural Areas

     Since the 16th National Congress of Communist Party(November

    ,
2012)speeding up the establishment of social security system which will

cover urban and rural residents has been proposed . Social security was

brought to an unprecedented strategy altitude. It has gone to the new

phase of balancing urban and rural development and achieving complete

                                     4
coverage. In 2003, “Suggestions on Build Newly Rural Cooperative

Medical Institution” was put into effect. It exerted itself to solve the

health problems of rural residents. In this system, the financing of

government accounts for 80%. In 2007, “The Guidance on Carrying out

Pilot Reform of Basic Medical Insurance for Urban Residents” was put

into effect, which covered urban residents who are not employed. In 2007,

“The Minimum Living Standard Security System for Rural Areas” was

put into effect which made both the urban and rural residents being

covered by the minimum living standard security system. It was decided

to implement the pilot reform of the old-age pension for workers in public

institutions in some provinces in 2009, and the public old-age pension for

urban residents in 2011



     1.2 Current Situation

     Now, the social security system in China is comprised of 6 items,

which are social insurance, social assistance, social welfare, and social

preferential treatment, housing security, charity and commercial

insurance. It can be further divided into 25 sub-items.



     1.2.1 Social Insurance

     Being as the core of social security system, social insurance is

comprised of basic old-age pension, unemployment insurance, medical

                                     5
insurance, work injury insurance and maternity insurance. The

complementary insurance concludes complementary old-age pension and

complementary medical insurance.

     Basic old-age pension is comprised of public old-age pension for

workers in urban enterprises, newly public old old-age pension for rural

residents and public old-age pension for urban residents. Workers in all

kinds of urban enterprises, individual business households, flexible

employed persons and foreigners employed in China are covered by

public old-age pension for workers in urban enterprises . Its institution

model is the combination of “social pool” fund and “personal accounts”.

Both the employers and the workers should undertake the responsibility

of contribution, and the rate is 20% and 8% respectively.. The individual

business households, and flexible employed persons who participate this

system should contribute 20% according to the local employee’s average

wage level last year and 8% of their contribution is booked into personal

account. Insured workers who reach the mandatory retirement ages (60

for male workers, 55 for female cadre, 50 for female workers, and 5 years

early for special professions), pay the contribution for 15 years, and fulfill

retirement procedures, could receive public old-age pension benefit

monthly.

     The financing resources of newly public old-age pension for rural

residents and public old-age pension for urban residents are individual

                                      6
contribution, collectivity assistance and government subsidy. The urban

and rural residents who pay the contribution for 15 years, and reach 60

years old, could receive benefits. The pension is comprised of national

basic pension and individual account. By 2012, it will achieve complete

coverage.

     Basic medical insurance is comprised of basic medical insurance for

workers in urban enterprises, newly rural cooperative medical insurance

and basic medical insurance for urban residents. All workers are covered

by the basic medical insurance for workers in urban enterprises, which

include workers and retirees in all kinds of organizations and private

business, flexible employed workers and peasant-workers. Its institutional

model is exercised by “social pool” fund and “personal accounts”. The

“social pool” fund is mainly used in the payment of hospitalization

(wholesale) costs and arranged by the Social Security Administration

Department. The “personal accounts” is mainly used to pay outpatient

(small account) costs. The insurance is paid by employers and employees

jointly.

     People who are not covered by basic medical insurance for workers

in urban enterprises could join the basic medical insurance for urban

residents voluntarily, which contain the primary and secondary school

students (including vocational senior school, technical secondary school

and vocational school students), children and other residents who are not

                                    7
employed. This sub-item is comprehensively arranged for serious

diseases. Its financing resources are mainly from family contribution,

appropriate subsidies from governments and the assistance by the

employer for the contribution of family members of his workers if

possible. The insurance fund is mainly used to pay the hospitalized and

outpatient serious diseases costs.

     Rural residents are covered by newly rural cooperative medical

insurance. Peasants could join this insurance voluntarily in the unit of

family. It is comprehensively arranged for serious diseases by mutual

assistance. The financing resources are personal contribution, collectivity

assistance and government subsidy. The way of compensation is mainly

divided into two kinds. In the first kind, the compensation is mainly used

for hospitalization costs, and the rest is used for outpatient costs. In the

second kind, the compensation is only used for hospitalization costs and

some chronic disease outpatient costs. The pattern of compensation is

basically the same as the basic medical insurance for workers in urban

enterprises.

     All kinds of enterprises and individual business households hiring

employees are covered by work injury insurance. The institutional pattern

of work injury insurance is “social pool” and pay-as-you-go, managed

and administrated by local governments. The employers should

contribute work injury insurance on time. The employees do not need to

                                     8
contribute. The benefits mainly include work injury medical cost

reimbursement, permanent disability subsidy, nursing care, installing

supplement appliance, funeral subsidy, supporting the bereaved families

and one-off work death grants.

    Urban enterprises and their employees are covered by maternity

insurance. The institutional pattern is “social pool” and pay-as-you-go,

managed and administrated by local governments. The enterprise

contributes according to certain proportion, and the employee does not

need to contribute. The benefits mainly include maternity allowance in

female employees’ maternity leave, the examination, delivering,

operation, hospitalization, medicine costs of maternity, and the medical

fee and other allowances caused by maternity after leaving hospital.

    Many kinds of enterprises including state-owned enterprises, urban

collective enterprises, foreign investment enterprises, urban private

enterprises and other urban enterprises, public organizations and their

employees are covered by unemployment insurance. The institutional

pattern is “social pool” and pay-as-you-go, managed and administrated by

local governments. The insured enterprises and employees contribute 2%

and 1% of employee’s salary respectively. The employees could get

unemployment insurance benefits when they meet the following

conditions. First, the employee and his employer have contribute for 1

year according to the rules. Second, the employment is not broken off by

                                    9
the employee’s desire. Third, the employee has already registered

unemployment, and has the desire to get a job. The benefits mainly

include unemployment insurance fund, medical grants, and funeral grants,

supporting the bereaved families, occupation training and introducing

subsidy. The period of receiving unemployment insurance benefits is

related to contribution period, and the longest period for receiving should

not be over 24 months.

     By the end of 2011, the coverage of public old-age pension has

expanded rapidly. Public old-age pension for workers in urban enterprises

had covered all the counties nationwide. Newly public old old-age

pension for rural residents had covered 81.5% counties. Public old-age

pension for urban residents had covered 75.3% counties, and the insured

population amount to 622 million, increasing 2.86 times than that in 2005.

In 683 counties, public old-age pension for urban and rural residents were

combined to implement. Basic health insurance covering nationwide

came true. The institution system of basic medical insurance for workers

in urban enterprises, newly rural cooperative medical insurance and basic

medical insurance for urban residents had covered all counties nationwide.

The insured population had reached over 1.3 billion, increased 2.77 times

than that in 2005. In 189 counties, the basic medical insurance for urban

and rural residents were combined to implement. The unemployment,

work injury and maternity insurances synchronized to implement with

                                    10
public old-age pension and basic medical insurance for workers in urban

enterprises. The insured population reached 142 million, 170 million and

122 million respectively.



     1.2.2 Social Assistance

     The object of social assistance in China is to gurantee the minimum

living standard for the low income population. The financing is all

undertaken by public finance. It can be divided into three classes. The

first class is usual assistance, such as minimum living standard security

system in urban and rural and the assistance institution for rural “five

guarantees”. The second class is emergency assistance, such as disaster

assistance. The third class is temporal assistance, such as medical

assistance, assistance for urban vagrants and beggars and so on.

     By the end of 2011, the objective population of minimum living

standard security system for urban residents had reached 22.5627 million;

the objective population of minimum living standard security system for

rural residents had reached 52.9828 million, and the objective population

of rural “five guarantees” had reached 5.7862 million. In 2011, the

medical assistance fund for urban and rural financed 66.4935 people to

attend health insurance, directly help 23.6727 million persons in post

medical curing.



                                    11
1.2.3 Social Welfare

     The social welfare institution, including old-age welfare, disable

welfare and children welfare, has gradually improved. Its key points are

assisting the old, helping the disabled and aiding orphans. By the end of

2011, in the whole nation, the social welfare organization were 42.5

thousand; the nursing beds were 3.2105 million; the population of

adopted old persons, disabled persons and children were 2.3792 million;

the social welfare enterprises absorbed 628 thousand disabled persons to

obtain employment.



     1.2.4 Veteran Benefit and Placement

     The veteran benefit and placement is a special policy treatment for

the veteran, military personnel in active service and their families. It is

characterized by honor, compensation and preferential treatment,

including veteran placement, preferential treatment for military personnel

in active service and soldier’s family, compensation the bereaved family,

and placement for the military retired cadres.



     1.2.5 Housing Security

     Housing security is comprised of housing accumulation fund,

economy housing and low rent housing. The housing accumulation fund

plan is forced to build by national regulations, covering urban employees.

                                     12
The accumulation fund is operated by government, financed by employer

and employee. The low rent housing is financed by government, provided

to the poor family by free or low rent. It used dynamic management

measures by personal application and verifying qualifications. The

economy housing is built by the qualified real estate companies, which

acquire tax preferential policy, and is sold to the low income family

according to government regulations.



     1.2.6 Charities

    The government supports and encourages social organizations and

social members to conduct charitable donation and social mutual

assistance by the tax preferential policy. The government guides and

support charities development, energetically cultivates public welfare and

charitable social organizations. By far, the social donation networks have

formed.

    Commercial insurance is also a component of social security system.

It is located to meet the requirement of high income group, who would

like to improve security level. The insurance is managed by commercial

insurance company, operated by market. The government initiates the

residents with economic capability to purchase all kinds of life insurance

and health insurance production of commercial insurance companies

according to personal preference.

                                    13
The framework of social security system in China is shown in the

followed figure1:


                                                                        The framework of social security system



                                                                                               The special care and              Housing security     Charity and commercial
            Social insurance      Social assistance             Social welfare                     placement                                          insurance


                                                                                                          the placement for                 Low rent housing
                     Old age                                             Social welfare fot the             retired soldier
                                        Minimum living standard                  odd
                     pension            security system for urban
                                          and rural residents s
                                                                                                                                            Economical housing
                   medical                                                                                The placement for
                   insurance                                              Social welfare for
                                                                                                           Retired army cadres
                                                                              children
                                          The five guarantees
                   Maternity                                                                               The special care for                  Housing
                   insurance                                                                                 active soldier                    accumulation
                                                                         Social welfare for the                                                    fund
                                        Emergence assistance                    disable
                                            for victims
                   Unemploymen
                    t insurance
                                                                                                            The special care for
                                                                                                          the military dependent
                                          medical assistance
                   Work injury
                   insurance
                                                                                                              Preferential
                                                                                                           treatment for the
                                         Assistance for Vagrants                                           armymen victims’
                                              and beggars                                                   family members



              Figure1. system framework of social security in china PRC

    1.3 Social Security Fund

    The social security fund is financed by two types. The social

insurance fund is financed by employee and employer’s contributions and

public finance. The social assistance and social welfare is mainly

financed by public finance. In 2011, 18 items of social security funds

inflowed ¥2840.205 billion, outflowed ¥2110.017 billion. The year-

end accumulative surplus was ¥3.111859 trillion, increasing 312.79%,

299.78% and 435.24% than that in 2005 respectively (shown in table 1).



 Table 1: social security inflows and outflows and surpluses in 2011

                                                                                                                (unit: billion,RMB)


                                                                   14
Social
                       Inflows                     Outflows                    Surplus in the end of year
security
funds        amount        ratio         amount          ratio          amount                  Ratio
Social
             2619.453      92.22%        1907.001        90.37%         3030.372                97.38%
insurance
Social
             185.659       6.54%         171.873         8.15%          64.535                  2.07%
assistance
Social
             35.093        1.24%         31.143          1.48%          16.952                  0.55%
welfare
Total        2840.205      100.00%       2110.017        100.00%        3111.859                100.00%



      In 2011, among 2619.453 billion of social insurance inflows, the

employers’ contributions, employees’ contributions, public finance and

other finance were 1261.491 billion, 717.796 billion, 539.148 billion and

101.018 billion, amounting for 48.16%, 27.4%, 20.58% and 3.86%

respectively (shown in figure 1). Among 220.752 billion of social

assistance and social welfare funds inflows, the public finance was

216.386 billion, and other finance was 4.366 billion, amounting for

98.02% and 1.98%.

                                                                                       public finance
         the employers’ contributions,




                                                                                    employees’ contributions
                other finance




                           Figure 2: the financing resources of social insurance fund in 2011

                Figure 2: the financing resources of social insurance fund in 2011

      In 2011,among 18 items of social security funds from public finance,
                                                       15
the central government and local government invested 450.876 billion

and 304.658 billion, increasing 534.15% and 632.01% than that in 2005

respectively. The proportion of social insurance, social assistance and

social welfare invested by central government are 60.67%, 64.74 and

15.27%. (Shown in table 2)
 Table2: the public finance investment from central and local governments
                                                                      (unit:billion, RMB)
                                                        Public finance   from central
                    Total public finance investment                                     Public finance from local government
    Item                                              government
                 Amount                 Ratio         Amount        Ratio               Amount              ratio
    Social
                 539.148                100.00%       327.107       60.67%              212.041             39.33%
    insurance
    Social
                 183.396                100.00%       118.733       64.74%              64.663              35.26%
    assistance
    Social
                 32.99                  100.00%       5.036         15.27%              27.954              84.73%
    welfare
    total        755.534                100.00%       450.876       59.68%              304.658             40.32%


        The surplus of social insurance fund is totally ¥3030.372 billion,

of which ¥7.183 billion is managed by People’s Bank of China and

China Agriculture Development Bank and central public finance special

account. The left surplus is managed by provincial, municipal and county

governments, and ratios are 38.08%, 35.61% and 26.31% respectively. In

the terms of area, the ratio of surplus in east, middle and west part of

China are 56.78%, 21.54% and 21.68% respectively. In terms of deposit

status, the ratios of surplus in current account, time deposit and other

status are 38.44%, 58.01% and 3.55%.

     The scale of China’s social security fund expands gradually. The

fund is operated smoothly and steadily, which guarantee effectively all

items of social security benefits payments.

                                                              16
1.4 Main Accomplishments

     1.4.1 Achieving Basically the Building of Social Security System

Covering Urban and Rural Areas, Promoting Social Fairness

Strongly.

     Since 2005, China has promulgated more than 20 regulations on

social security. The minimum living standard security system in rural has

established. The pilot reforms of basic medical insurance for urban

residents, newly rural cooperative medical insurance and public old-age

pension for urban residents have been implemented, which first built the

complete social security for rural and urban residents historically in China.

The goal of social security of all people with basic living security has

gradually put forward. The insured covered by newly rural cooperative

medical insurance and public old-age pension for urban and rural

residents had grown from 2700 million in 2009, when the institutions had

been established, to 3550 million in 2011, increasing 12.15 times. The

insured covered by basic medical insurance for urban residents and basic

medical insurance for urban and rural residents reached 2160 million in

2005, over 1 billion in 2011, increasing 3.89 times. The coverage of

social insurance in rural areas expands rapidly. The insured of public

old-age pension and basic medical insurance were 161 million and 345

million in 2005, over 600 million and 1.3 billion at the end of 2011,

                                     17
increasing 2.86 and 2.77 times respectively. (The coverage of five social

insurances since 2005 is shown in Figure 3)




    With more energy on social assistance and more improvement of

assistance standard, the coverage of social assistance expands gradually.

In the end of 2011, the population covered by minimum living standard

security system had reached 75.5455 million, increased 1.59 times than

29.1752 million in 2005. (The changing of population of minimum living

standard security system in urban and rural in 2005-2011 can be shown in

Figure4.)




                                   18
minimum living
       standard security
       system in urban


    minimum living
    standard               FIigure4.The changing of population of minimum living
    security system        standard security system in urban and rural in 2005-2011
    in rural

     In terms of social security investment, the key points are inclining

to less developed areas and rural areas to narrow the gap of social

security between regions. Since 2005, in the investment of public finance

of central government, the proportion of middle and west parts of China

is kept 80%. The investment in middle and west parts grows from

¥54.757 billion to ¥360.995 billion, increasing 5.59 times. (The public

finance investment from central government in east and middle& west

area in 2005-2011 is shown in Figure 5)




                                          19
The public finance investment of central government to peasants

expands gradually. The subsidy to newly public old old-age pension for

rural residents grows from ¥1.076 billion in 2009, when the institution

was built, to ¥35.206 billion in 2011, increasing 31.73 times. The

subsidy to newly rural cooperative medical insurance grows from

¥0.542 billion in 2005 to ¥80.177 billion in 2011, increasing 146.93

times. (The public finance subsidies from central government to newly

public old old-age pension for rural residents and newly rural cooperative

medical insurance in 2005-2011 is shown in Figure6)




                                    20
old-age pension for
    rural residents


    newly rural cooperative medical insurance
                  Figure6. The public finance subsidies from central government to newly
                  public old old-age pension for rural residents and newly rural cooperative
                  medical insurance in 2005-2011

1.4.2 Increase Social Security Level Steadily and Improves People’s

Lives Obviously

    In recent years, China improves the social security level in old-age

pension, medical insurance and minimum living standard security steadily.

That the old will be looked after, the sick will be medicated, and the

people in difficulty will be helped, and they could enjoy the national

development fruits. In terms of public old-age pension, from 2005 to

2011, the benefit level of enterprise workers has been increased 7 times

consecutively, from ¥713.25 in 2005 to ¥1516.68 per capita monthly

with the yearly growth rate of 13.4%. The extent of rising is 10.03

percentages higher than CPI in the corresponding period. (The benefit

changing of public old-age pension for workers in urban enterprises in

2005-2011 is shown in Figure7.)




                                           21
Yuan/moth/personn




          Figue7. The benefit changing of public old-age pension for workers in
          urban enterprises in 2005-2011

    In terms of basic medical insurance, the reimbursements ratios of

three sub-items which are basic medical insurance for workers in urban

enterprises, newly rural cooperative medical insurance and basic medical

insurance for urban residents has heightened gradually in the scopes of

the “three catalogs” (basic pharmacy catalog, basic service facility

catalog and basic service item catalog) of the national basic medical

insurance. By the end of 2011, the ratios had reached 77%, 62%, and 70%.

The factual reimbursement ratio of basic medical insurance has also

increased steadily in recent years, especially in rural areas. The factual

reimbursement ratios of basic medical insurance for workers in urban

enterprises and basic medical insurance for urban residents increased

from 58.91% and 45.00% in 2005 to 64.10% and 52.28% in 2011,

increasing 8.81% and 16.18% respectively. The factual reimbursement

                                        22
ratios of newly rural cooperative medical insurance and basic medical

insurance for urban and rural residents increased from 24.80% and

23.78% in 2005 to 49.20% and 44.87% in 2011, increasing 98.39% and

88.69% respectively. (The changing of factual reimbursement ratio in all

sub-items of basic medical insurance in 2005-2011 is shown in Figure 8)




        Figure8. The changing of factual reimbursement ratio in all sub-items
        of basic medical insurance in 2005-2011


In terms of minimum living standard security system, the average

security level for urban and rural residents increased from ¥154.3 and

¥74.83 in 2005 to ¥288.04 and ¥140.29 per capita monthly in 2011,

increasing 86.68% and 87.48% respectively. The subsidy level increased

from ¥73.34 and ¥28.37 in 2005 to ¥227.92 and ¥100.07 per

capita monthly in 2011, increasing 210.77% and 252.73% respectively.

(The changing of accumulative rate of minimum living standard security

and subsidy level in urban and rural in 2005-2011 is shown in Figure9.)
                                      23
Figure9. The changing of accumulative rate of minimum living
       standard security and subsidy level in urban and rural in 2005-
       2011


From 2006 to 2011, the average growth rates of minimum living

standard security in urban and rural are 10.99% and 11.4%, 7.62

percentages and 8.03 percentages higher than the average growth rates

of CPI in the same period. Especially since the universal

implementation of minimum living standard security system in rural

nationwide in 2007, the average growth rate of security level is 14.02

percentages higher than the average growth rate of CPI at the same

period. (The changing of growth rates of minimum living standard

security in urban and rural and CPI in 2006-2011 is shown in Figure

10).




                                  24
Figure10. The changing of growth rates of minimum living standard
        security in urban and rural and CPI in 2006-2011




     1.4.3 Solves the Problem of History Leave-over and Security of

Special Groups, Promotes the Harmony and Stability of Society.

     Chinese government keeps solving the history leaving over problems

of social security, and improving the living conditions of land acquisition

peasants, low income and special difficulties groups, which provides a

good condition for industrialization, urbanization and state-owned

reforming. By the end of 2011, 5 million uninsured retired people in

collective enterprises and 20.9 million land acquisition peasants had been

covered by old-age pension. 10.31million retired people in bankrupt

enterprises and workers in running-difficult enterprises had been covered

by medical insurance. 3.12 million “workers with work injury in early

times ” had been covered by the social pool of work injury insurance.
                                    25
Meanwhile, public finance from central government and local

governments have keeping investing in medical assistance fund. The

difficult population who get financially assisted by medical assistance

fund to be insured increased gradually, and the person of direct assistance

to post remedied also increased. The population by assistance to be

insured increase from 4.8402 million in 2005 to 66.4935 million in 2011,

increasing 12.74 times. The person of direct assistance to post remedied

increased from 2.5373 million in 2005 to 23.6727 million in 2011,

increasing 8.33 times. (The changing of population who were difficult

financially assisted by medical assistance fund to be insured and the

person of direct assistance to post remedied is shown in Figure 11.)




           Figure11. The changing of population who were difficult financially
           assisted by medical assistance fund to be insured and the person of
           direct assistance to post remedied


     1.4.4 Stands up in Natural Catastrophe, Safeguards the Basic

Living of Victims by Disasters
                                      26
The social security funds play a positive role in facing natural

disasters, solving the temporary difficulties such as food, clothing,

housing and hospitalization, transferring, rescuing, and settling the

victims and reconstruction. Since 2005, central government and local

governments invested ¥141.07 billion of living assistance fund for

natural disaster, of which ¥102.91 billion were from central public

finance, and ¥38.16 billion were from local public finances. 595.884

million victims were assisted totally, of which 106.433 million people

were transferred and settled in emergency, 489.451 people were assisted

for living through winters and springs, 219.13 million houses were

reconstructed. After natural catastrophes, such as Wenchuan earthquake,

Yushu earthquake and Zhouqu mud avalanche, the public finance from

central government invested in living assistance amounting to ¥76.924

billion. In disasters, 9.4779 million people were rescued, and 5.932

million houses were reconstructed. The timely investment of emergent

funds makes victims settled down properly and the victims’ basic living

guaranteed effectively.



     1.4.5. Expand the Scale of Social Security Fund, Provides an

Important Support for Economic and Social Development.

     The scale of social security funds expands rapidly, which establishes

a solid material foundation for the sustainable development of social

                                    27
security system. By the end of 2011, the accumulated surplus of social

insurance funds had reached ¥3.030372 trillion, increased 4.34 times

than that at the end of 2005. The average growth rate is 32.19%. 98% of

funds were deposited in financial organizations. (The changing of

accumulated surplus of social insurance funds in 2005-2011 is shown in

Figure 12.)




         Figure12. The changing of accumulated surplus of social insurance
         funds in 2005-2011


     Public finance from central and local governments has kept

investing in social security. The social security investment from local

public finance including the central government transferring payment

increased from ¥341.845 billion in 2005 to ¥1416.4 billion in 2011,

increasing 314.34%. It is higher than the growth rates of local public

fiancéinflows and outflows at the same period, which are 247.32% and

267.4%, 67.02 percentages and 46.94 percentages higher respectively.

(The growth rate changing of social security investment from local public

finance, local public finance inflow and outflow is shown in Figure 13. )
                                     28
Figure13. The growth rate changing of social security investment from
       local public finance, local public finance inflow and outflow




The outflows of 18 items social security funds increased from ¥527.8

billion in 2005 to ¥2.110017 trillion in 2011, increasing 299.78%. (The

changing of the outflows of 18 items social security funds is shown in

Figure 14.)




              Figure14.The changing of the outflows of 18 items social
              security funds


The improvement of social security system, the expansion of inflows

                                       29
and outflows, and the fast accumulation of funds play a positive role in

strengthening public confidence, promoting social fairness, pulling

consumption, boosting domestic demand, tackling international finance

crisis effectively, promoting the transform of economy development

model, and also providing multiple support for economy and social

development.



     1.4.6 The System of Social Security Management and

Administration has Formed Basically.

     By the end of 2011, the system and network of social security

management and service has constructed gradually, which levels of Social

Security Administration Department are as main organizations including

banks and kinds of service organizations. There are 11.9 thousand Social

Security Administration Department nationwide. Public service facilities

of civil affairs are constructed greatly. The abilities of basic security and

service are keeping strengthening. The community service system

gradually   developed.     Meanwhile,     social   insurance     supervision

committees are built in 28 provincial levels, 217 municipal levels and

1189 county levels. The society is keeping supervising intensively. Levels

of governments organize relevant departments to launch special

supervision and examination time after time, to promote the

standardization of fund management.

                                     30
2. The Main Existing Problems

    The reform of social security system in China is using the model of

“fording the river by feeling for the stones”. Surrounding the reform of

national economy mechanism, embarking from handling the most urgent

problems, the social security system is designed by groups, managed by

departments, implemented by regions, the way of which push the

development of social security system growing out from nothing and

developing rapidly. However, with the deepening reform and accelerating

urbanization, the improving of the economy and social development, the

advancing of democratic rule of law, and the gradual expanding of

population mobility, flaws including the relevant institutions lacking of

linkage, scattering and overlapping gradually appeared. So some issues

should be improved and improved further.



    2.1 The Issue of Institutional Fairness

    Firstly, some groups have uninsured. Peasant-workers also belong to

enterprise workers, and should be insured in urban social insurance.

However, the proportion of insured peasant-workers in this system is

obviously low. Take the public old-age pension as a example, by the end

of 2011, the population of peasant-workers has reached 252.78 million.

However, the population of peasant-workers insured in public old-age

                                   31
pension for workers in urban enterprises were 41.4 million, insured in

unemployment insurance were only 23.91 million, insured in basic

medical insurance for workers in urban enterprises were 46.41 million,

and insured in work injury insurance were only 68.28 million. The

insured rates were 16.3%, 9.5%, 18.4%, and 27% respectively, which are

obviously very low. Most of peasants-workers could not benefit from the

urban basic social security.

     The situation of peasant-workers insured in public old-age pension

for workers in urban enterprises in 2006-2010 is shown in figure15.




          Figure15. The situation of peasant-workers insured in public
          old-age pension for workers in urban enterprises in 2006-2010


Secondly, the social security policies in different regions do not

uniformed. From the perspective of contribution policy, by the end of

2011, the contribution base were not carried out according to the law of

social insurance in 21 provinces, 201 municipalities and 1252 counties,

which regulates the base was calculated by the worker’s total salary. The

kinds of factual contribution rates of public old-age pension for workers

                                   32
in urban enterprises were 16, and the highest was 22%, the lowest was

10%. It is that the contribution rate does not uniformed yet in 8 provinces.

In some province, it was amounted to 12 kinds that the contribution rates

were. In addition, the contribution rate or the contribution basis of social

insurance was reduced by local decisions in 5 provinces, 4 municipalities,

and 8 counties, the contributions were ¥51.734 billion less than it

should be. The insured conditions of social insurance, such as age and

“hukou”, were restricted by local decisions in 3 provinces, 6

municipalities, and 9 counties. The social insurance policies in 16

non-dependent administrated development zones were carried out

differently from local administration. So the disparity of contribution

level varied greatly, and the contributions for enterprises and individuals

were unbalanced.

     Thirdly, the benefit level gap is too big for some groups. Currently,

public old-age pension for workers in urban enterprises and institution for

old-age security of retirees in public organizations exist at the same time

in China. This dual-track system of enterprise and public organizations

leads to the increasing gap between workers and cadres, which bring

obvious problem of social unfairness and great social conflicts. According

to census, the pension per capita monthly in governments and public

organizations is 1.07 and 1.1 times of those in enterprises in 1990, and

1.54 and 1.57 times in 2000. In the 21st century, the difference amplified

                                     33
further, and they became 2.25 and 1.89 times in 2010. Although the

pension level for enterprises retirees are raised consecutively in 8 years,

the absolute gap is still increasing.

     In more than 20 years, Chinese economy grows rapidly, the pension

for enterprises workers grows more, and the average yearly growth rate

reaches 12%. But the growth rate of pension for public organizations

reaches 16%. The gap is continuously widening.



     2.2 The Linkage among Different Insurances do not Effectively

Realized Completely Yet.

     Currently, social insurance system is designed by groups. There are

not explicit linkage among different institutions. Even if in the same

insurance institution, the policies were implemented variously in different

regions. This brings the problems of repeated contribution, transferring

and continuing contribution. By the end of 2011, 1.1242 million people

has participated public old-age pension for workers in urban enterprises,

newly public old old-age pension for rural residents and public old-age

pension for urban residents at the same time;     10.8611 million people

has contributed basic medical insurance for workers in urban enterprises,

newly rural cooperative medical insurance and basic medical insurance

for urban residents repeatedly, which brings public fiancé subsidy

¥ 1.769 billion excessively; 92.7 thousand people receive pension

                                        34
benefits repeatedly of ¥684.529 million; 95.7 thousand people get

medical costs reimbursement of ¥147 million; 2.404 million people

have two or more trans-provincial personal accounts of public old-age

pension for workers in urban enterprises nationwide. In addition, the

problems of old social security for rural areas are complicated, and

promoting of new social security for rural areas is heavy in some regions,

so there are problems that the funds of old social security for rural areas

have not transferred into new social security for rural areas.



     2.3 The Operation Mechanism of Social Security Need to be

Improved.

     Currently, various works of social security are governed by different

departments, and operated by different administrations. Contributions are

also collected by different organizations. The coordination and

connection among different departments is not enough, which in turn

influences the whole executing effects of policies to some extent. For

example, there are some problems that lead the policy of financing the

poor to be insured in medical insurance by the medical assistance funds is

not carried out completely yet in some regions, such as the coordination

mechanism operates ineffectively because of basic medical insurance and

medical assistance are managed by many departments, the service

capabilities of social assistance in grass-roots level in some regions are

                                     35
not enough, the capabilities of management are weak, the working

methods are still backward and so on. By the end of 2011, in 2514

counties, the accumulated surplus of medical assistance in urban and rural

areas was ¥12.639 billion, the same as 80.28% of the public finance

investment in medical assistance in those regions at the same year.

However, according to the policies, the proportion of people covered by

minimum living standard security system who was financed by medical

assistance fund to be insured in medical insurance was only 63.69%. In

random selective 7522 enterprises which are audited in five items of

social insurance contributions collected by different administrations, the

contribution base of 6123 enterprises was checked and ratified

inconsistently in every item of insurance, and the ratio is 81.4%.

     In addition, special funds are not carried out for special purposes

strictly in some regions, ¥30.592 billion social security funds are mixed

used among different social security items.



     3. The Main Situations of Social Security to be Faced with

     Currently, China is and will be in the primary stage of socialism in

the long run. The main contradiction of social security is the conflict

between the people’s growing social security needs and the backward

social production. Meanwhile, many challenges to social security system

are brought by the profound adjustment of economy structure, the

                                     36
accelerating transformation of social structure, the sharp transformation

of population structure.

     First, the aggregate economy grows continuously, but the growth

rate becomes slow down. Currently, China is at the middle stage of

industrialization and at the period of driving urbanization fast. The

endogentic dynamics of economy growth is powerful. The healthy

fundamental situation is not changed in the long run. After 30 years

consecutive high speed growing, the economy will still grow steadily in a

long term. However, China need to be farewell to traditional extensive

growth pattern, accelerate to transform economy development pattern,

push the adjustment of industry structures, and pay attention to the quality

and efficiency of economy. In addition, because of the uncertainties

brought by the economy globalization and international financial crisis,

Chinese growth rate will slow down in the future. This will lead some

firms bankrupt, lock, merge and transform. The flexible employed people

will continue to increase since the third industry is strived to develop, and

the poor will also be likely to grow. Those above mentioned negative

factors will challenge social security system.

     Second, with the rapid urbanization, the floating population will

keep in a large scale in long term. It is estimated that the level of China’s

urbanization in 2015 will be close to 55%, 60% in 2020, 70% in 2030,

and the urban population will reach 1 billion in 2030. Thus, the great

                                     37
amount of floating peasant workers between urban and rural areas will

greatly increase the difficulty in the connection of urban and rural social

insurance institution.

     Third, the primary distribution has great disparity, and the

adjustment of secondary distribution has greatly difficulty. Currently, the

income differentials between urban and rural area exceed 3:1. The income

of highest 10% income group is 23 times of that of lowest 10% income

group. The proportion of urban and rural poor population in China is still

large in the future, and the difficulty of breaking away from poor will

broaden gradually. The conflicts between fairness and differentiation will

still be faced in improving social security system and developing the

adjustment function of redistribution. In one hand, different social classes

expect to incline to urban and rural low income people by redistribution,

to narrow the income gap, to reflect social fairness and to promote social

harmony. In the other hand, different classes start from theirselves

interests, keep comparing benefits, appeal kinds of desires. It is not only

to narrow different classes’ benefits, but also to have overall

consideration of different interests. This is the long term tasks to reform

and improve the social security system.

     Fourth, the aging of population is accelerating. Compared with the

aging of population in developed countries, there are 3 characters of

China’s aging of population. The first is coming early. Western countries

                                     38
go to aging behind the completion of industrialization. But China goes to

aging without achieving wealthy. The second is coming soon. The aging

in western countries from 5% to 10% uses 40 years commonly, but it is

18 years in China. In 2010, the 65 and above years old people in China

reached 120 million, accounting for 8.9% of total population. It is

predicted that it will be 13% in 2020, approximate 30% in 2050, and the

population of 65 and above years old will reach 400 million at that time.

The third is lasting long. Because of large population base, it is perdicted

that the aging peak will appear in 2030s, and will keep 30 to 40 years. In

2050 there will be one old person among 4 persons by preliminary

calculation.



     4. The Objective of Social Security Development in China

     The basic objective of social security system in China is to build the

whole people sharing social security institution, mechanism and system

with Chinese characteristics, to fulfill that the whole people are insured,

the way of security is variety, the financing resources are diversified, the

management and service is socialized, to provide the harmonious and

steady safety net for fulfilling comprehensive well-off society.

     Five aspects should be emphasized. First, the security items should

be complete, thus everyone could enjoy basic security. Second, the

benefits should be appropriate and could guarantee the basic living

                                     39
effectively. Third, the management and service should be improved and

could guarantee the convenient, swift and comprehensive services for

citizens. Fourth, the institution should be customized and the funds could

balance in the long run to realize sustainable. Fifth, the way of security

should be multilevel to meet people’s higher needs.



     5. The Main Tasks of Contemporary Social Security Reform in

China

     The main tasks of accelerating the development of social security

system with Chinese characteristics are to strengthen the fairness of

institution, to adapt liquidity, and to secure the sustainability.



     5.1 Strengthen the Fairness

     In first, institution absence should be made up quickly, and the social

security system should be constructed perfectly. Currently, the social

security system has covered urban and rural residents. However, some

people have still not been absorbed in current institutions such as the

peasant-workers, flexible employment groups and so on. The most

unfairness is without institutional security. Now, the prominent problem

is that, the contribution rate of public old-age pension for workers in

urban enterprises, which the employer should contribute 20% of worker’s

salary and the worker should contribute 8% of his salary, is too high to

                                       40
make some enterprise and people without employers have the ability to

contribute, and also make many small firms and low income group people

are not able to contribute,. So the measures of reducing contribution base

and rate properly should be taken to encourage and guide private

enterprises and flexible employed groups to participate in basic old-age

pension and expand coverage. The history leave-over problems in the

process of mechanism transferring should also be solved positively by

adopting public finance investment and multiple channels of financing.

Meanwhile, the institutions for the sick and the disable allowance and the

survivor subsidy should be built, thereby the security system for the sick,

the disabled and the survivor are integrated in the social security system.

     In second, the old-age subsidy institution should be carried out for

the urban and rural old-age people without any security. Now, the

population of old-age people without any security in rural and urban areas

is about 100 million. The problem of their impoverishment is more and

more prominent. The national old-age subsidy institution dominated by

the central government should be developed gradually.

     In third, the whole benefit level of basic security should be improved

gradually, and the benefit differences among different groups should be

defined properly. With the development of economy, the social security

benefit level should be improved in plan and step by step. The people

should share more fruits of economy and social development. In the time

                                     41
of improving the whole benefit level, the benefit differences among

different groups should be defined properly, and the function of social

security to adjust social allocation should be utilized. The problem of

benefit gap between enterprise workers and public organization cadres at

the same level should be controlled by policy adjustment to prevent the

gap increasing further. Meanwhile, the benefit gaps between workers and

residents, urban and rural areas should be narrow gradually, and the

minimum living standard between urban and rural areas should also be

narrow gradually.



     5.2 Adapt Liquidity

     In first, the administrated level of social security should be

heightened. The administrated level of public old-age pension for workers

in urban enterprises should be enhanced to the national level gradually

based on achieving the administrated level of provincial. The problems of

transferring and continuing of the records of social security for liquid

groups should be solved. The problem of medical insurance needs to be

resolved is the settlement of medical costs among different areas. The

administrated level of basic medical insurance, unemployment insurance,

and work injury insurance should be realized gradually in municipal level,

and balanced in provincial level. Some regions should try to be realized

in provincial level if possible.

                                   42
In second, the policy connections in the same institutions should be

solved properly. The institution of public old-age pension for workers in

urban enterprises and public old-age pension for urban and rural residents

should be connected and transformed, to adapt the liquidity of labors

moving between urban and rural areas. The transforming path between

urban and rural health insurance institutions should be linked gradually,

to guarantee the rights of different groups while moving between urban

and rural areas. The medical security institutions for urban and rural

residents should be uniformed. Combining with the reform of government

organizations, the management and administration mechanism of social

security should be straightened out further, and the resources of social

security management should be integrated to improve the operation

efficiency.

     In third, the social security information management system should

be developed rapidly. The fundamental resolution is improving

information level in solving the conflict between adapting liquidity and

inability of social security management and service. The social security

information management system should be built in uniform standard and

could be access to nationwide networking, and could share data with

other public management system. By the way of informatization, the

contribution and benefit of the insured could be recorded timely and

accurately. The system could follow, record, serve and guarantee the

                                    43
whole life of a person, and provide convenient, fast and excellent social

security service for people.



     5.3 Secure Sustainability

     First, social security funds should expand. The social security

supporting ability should be strengthened, in securing the sustainability of

social security, especially in replying to the challenges of aging peak. The

following measures could be take consideration. The public finance

expenditure structure should be adjusted further to increase the

investment to social security. Based on the revenue of public finance, the

proportion of social security to public finance should increase gradually.

The single social security budget should be built, and the ratio of social

security amount to GDP should be increased. The personal account of

old-age pension should be made full. The “empty” of personal account in

public old-age pension for workers in urban enterprises should be solved.

The scale of national social security fund should expand, and the national

strategy storage should be enriched. The investment channel of social

security fund should be developed. The regulation on management of

surplus and maintenance and appreciation of social security funds should

be promulgated to solve the problems of fund squeezing, appropriating

and depreciation. The supervision mechanism should be built to

guarantee the funds safety.

                                     44
Second, the legislation of social security should be paced quickly.

Combined with the implementation of the Law of Social Insurance, the

“Interim Regulations on the Collection of Social Insurancet”,

“Regulations on Unemployment Insurance”, “Interim Regulations on the

Disable Employment Fund Management”, “Finance Institutions on Social

Insurance Fund”,” Accounting Institutions on Social Insurance Fund” and

etc. should be revised. The regulations of social insurance, social

assistance and social welfare institutions linkage should be improved to

build a thorough system of social security law and regulation system.

     Third, the mandatory age for retirement should be prolonged in

proper opportunity. Prolonging the age for retirement is the priority

policy in every country to replying aging. According to the facts of

people’s improving health level and the extending life expectancy, in the

premise of studying supply and demand in labor market and considering

the psychological endurancee of people, the adjustment of retirement

should be adjusted properly using flexible strategy.

     Fourth, the complementary security should be developed, and multi

level security system should be built. The items of complementary social

security not only include enterprise annuity, complementary medical

insurance, and civil servant medical assistance, but also include

commercial old-age pension, health insurance and social charity business.

Currently, the development of complementary social security in China

                                    45
still lags, and it has limited influence on the whole social security system.

The employer should be encouraged to build complementary insurance

for employee, through more powerful preferential tax policy. Meanwhile,

the market resources should be fully utilized, and all kinds of social

organizations and market subjects should be guided and standardized to

set up complementary social security business.




                                     46

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China

  • 1. The Reform and Development of Social Security System in China PRC 1 Professor Tan zhonghe Chinese governments pay high attention to the construction of social security system. Since 1980s, with the fast development of Chinese economy, and adapted to the needs of market-oriented system reform, China reforms traditional social security system. Then, the social security system in China has achieved remarkable success in institutions building, improving mechanisms and structure, expanding coverage, raising treatment level, and promoting the opportunity of everyone’s acquiring social security fairly and equally. By the end of 2011, the goals of social security development had been mainly accomplished, which is “making social insurance, social assistance and social welfare as foundations, and basic old-age pension, basic medical insurance and minimum living standard security as key points.” 1. Basic Situation 1.1 The development process of social security system in China Starting from the founding of New China, the social security system China has undergone the period of growing out of nothing, broadening 1 Professor Tan zhonghe,National Social Security Institute, Ministry of Human Resources and Social Security of China PRC. Email:zhonghe2009@gmail.com. Address: Room 1205, No.17 street West Huixin, Changyang District,Beijing,china,PRC ZIP:100029 1
  • 2. coverage from urban to rural, from workers to all other residents in urban and rural areas. It can be divided into three phases in this 60 years. 1.1.1 The Phase of Forming Labor Insurance From the initial stage of New China to the beginning of Reforming and Opening-up, for adapting the needs of planning economy system, the policies of low-pay, high employment rate, high subsidy and extensive welfare had been applied. Urban citizens were taken all responsibilities by the government and enterprises in employment, housing, pension, Medicare, and enrolling of children nurseries and schooling. In rural areas, farmers depend on their land and provided the aged in their families. The five guarantees families (the aged, the infirm, the old,widows and orphans) were guaranteed by the rural collectiveness. In add, the government guaranteed urban families to gain certain necessities by the way of “low price, implicit subsidy and allotment”. At that time social background, the social security system played a positive role in stabilizing the society. However, the dual problems of identity discrimination and equalitarianism were brought about, which is that the guaranteed subjects were mainly the people employed in public economy organizations, and that the allocating methods were used by the rule of equalitarianism mess. 2
  • 3. 1.1.2 The Phase of Focusing on the Reform of Social Insurance From the initial stage of Reforming and Opening up to the year of 2002, when the 16th National Congress of Communist Party was held, surrounding the reform of state-owned enterprises and economy system transition, China has explored the construction of social security system which sharing the responsibilities among the state, enterprises and individuals, according to the requirement of socialist market economy system. First of all, public old-age pension for workers in urban enterprises. In this phase, China has established the public old-age pension which institutional model is the combination of “social pool”fund and “personal accounts”. Both the employers and workers have the responsibility of paying old-age pension contribution. The benefit level is related to the contribution period. Thus, the incentive and constraint mechanism of “pay more, get more” is initially established. Secondly, unemployment insurance. The unemployment insurance of workers in urban enterprises was firstly built in 1986, at the time of which called the “unemployment” as “waiting for employment” instead. In 1999, the State Council issued “Regulations on Unemployment Insurance”, which established the dual functions of unemployment insurance of guarantying the minimum living standard and improving employment. 3
  • 4. Thirdly, basic medical insurance for workers in urban enterprises. China started the pilot reform of the institutional pattern of “social pool” fund and “personal accounts” in certain cities in 1994. Then, in 1998, the State Council issued decisions, which set the policies, institutions and measures of workers’ basic medical insurance of workers in urban enterprises. The reform of medical insurance of workers in urban enterprises was fully activated. Meanwhile, the institutions of work injury insurance, maternity insurance, minimum living standard security system for urban residents and so on were also get development and improvement. However, in this period, the construction of social security system in China was mainly developed to take city as a center, and to take occupational workers as a key point. So the social security for the rural and the poor was not comprehensively designed and considered. 1.1.3 The Phase of Institutional Innovation Characterized by Balancing Urban and Rural Areas Since the 16th National Congress of Communist Party(November , 2012)speeding up the establishment of social security system which will cover urban and rural residents has been proposed . Social security was brought to an unprecedented strategy altitude. It has gone to the new phase of balancing urban and rural development and achieving complete 4
  • 5. coverage. In 2003, “Suggestions on Build Newly Rural Cooperative Medical Institution” was put into effect. It exerted itself to solve the health problems of rural residents. In this system, the financing of government accounts for 80%. In 2007, “The Guidance on Carrying out Pilot Reform of Basic Medical Insurance for Urban Residents” was put into effect, which covered urban residents who are not employed. In 2007, “The Minimum Living Standard Security System for Rural Areas” was put into effect which made both the urban and rural residents being covered by the minimum living standard security system. It was decided to implement the pilot reform of the old-age pension for workers in public institutions in some provinces in 2009, and the public old-age pension for urban residents in 2011 1.2 Current Situation Now, the social security system in China is comprised of 6 items, which are social insurance, social assistance, social welfare, and social preferential treatment, housing security, charity and commercial insurance. It can be further divided into 25 sub-items. 1.2.1 Social Insurance Being as the core of social security system, social insurance is comprised of basic old-age pension, unemployment insurance, medical 5
  • 6. insurance, work injury insurance and maternity insurance. The complementary insurance concludes complementary old-age pension and complementary medical insurance. Basic old-age pension is comprised of public old-age pension for workers in urban enterprises, newly public old old-age pension for rural residents and public old-age pension for urban residents. Workers in all kinds of urban enterprises, individual business households, flexible employed persons and foreigners employed in China are covered by public old-age pension for workers in urban enterprises . Its institution model is the combination of “social pool” fund and “personal accounts”. Both the employers and the workers should undertake the responsibility of contribution, and the rate is 20% and 8% respectively.. The individual business households, and flexible employed persons who participate this system should contribute 20% according to the local employee’s average wage level last year and 8% of their contribution is booked into personal account. Insured workers who reach the mandatory retirement ages (60 for male workers, 55 for female cadre, 50 for female workers, and 5 years early for special professions), pay the contribution for 15 years, and fulfill retirement procedures, could receive public old-age pension benefit monthly. The financing resources of newly public old-age pension for rural residents and public old-age pension for urban residents are individual 6
  • 7. contribution, collectivity assistance and government subsidy. The urban and rural residents who pay the contribution for 15 years, and reach 60 years old, could receive benefits. The pension is comprised of national basic pension and individual account. By 2012, it will achieve complete coverage. Basic medical insurance is comprised of basic medical insurance for workers in urban enterprises, newly rural cooperative medical insurance and basic medical insurance for urban residents. All workers are covered by the basic medical insurance for workers in urban enterprises, which include workers and retirees in all kinds of organizations and private business, flexible employed workers and peasant-workers. Its institutional model is exercised by “social pool” fund and “personal accounts”. The “social pool” fund is mainly used in the payment of hospitalization (wholesale) costs and arranged by the Social Security Administration Department. The “personal accounts” is mainly used to pay outpatient (small account) costs. The insurance is paid by employers and employees jointly. People who are not covered by basic medical insurance for workers in urban enterprises could join the basic medical insurance for urban residents voluntarily, which contain the primary and secondary school students (including vocational senior school, technical secondary school and vocational school students), children and other residents who are not 7
  • 8. employed. This sub-item is comprehensively arranged for serious diseases. Its financing resources are mainly from family contribution, appropriate subsidies from governments and the assistance by the employer for the contribution of family members of his workers if possible. The insurance fund is mainly used to pay the hospitalized and outpatient serious diseases costs. Rural residents are covered by newly rural cooperative medical insurance. Peasants could join this insurance voluntarily in the unit of family. It is comprehensively arranged for serious diseases by mutual assistance. The financing resources are personal contribution, collectivity assistance and government subsidy. The way of compensation is mainly divided into two kinds. In the first kind, the compensation is mainly used for hospitalization costs, and the rest is used for outpatient costs. In the second kind, the compensation is only used for hospitalization costs and some chronic disease outpatient costs. The pattern of compensation is basically the same as the basic medical insurance for workers in urban enterprises. All kinds of enterprises and individual business households hiring employees are covered by work injury insurance. The institutional pattern of work injury insurance is “social pool” and pay-as-you-go, managed and administrated by local governments. The employers should contribute work injury insurance on time. The employees do not need to 8
  • 9. contribute. The benefits mainly include work injury medical cost reimbursement, permanent disability subsidy, nursing care, installing supplement appliance, funeral subsidy, supporting the bereaved families and one-off work death grants. Urban enterprises and their employees are covered by maternity insurance. The institutional pattern is “social pool” and pay-as-you-go, managed and administrated by local governments. The enterprise contributes according to certain proportion, and the employee does not need to contribute. The benefits mainly include maternity allowance in female employees’ maternity leave, the examination, delivering, operation, hospitalization, medicine costs of maternity, and the medical fee and other allowances caused by maternity after leaving hospital. Many kinds of enterprises including state-owned enterprises, urban collective enterprises, foreign investment enterprises, urban private enterprises and other urban enterprises, public organizations and their employees are covered by unemployment insurance. The institutional pattern is “social pool” and pay-as-you-go, managed and administrated by local governments. The insured enterprises and employees contribute 2% and 1% of employee’s salary respectively. The employees could get unemployment insurance benefits when they meet the following conditions. First, the employee and his employer have contribute for 1 year according to the rules. Second, the employment is not broken off by 9
  • 10. the employee’s desire. Third, the employee has already registered unemployment, and has the desire to get a job. The benefits mainly include unemployment insurance fund, medical grants, and funeral grants, supporting the bereaved families, occupation training and introducing subsidy. The period of receiving unemployment insurance benefits is related to contribution period, and the longest period for receiving should not be over 24 months. By the end of 2011, the coverage of public old-age pension has expanded rapidly. Public old-age pension for workers in urban enterprises had covered all the counties nationwide. Newly public old old-age pension for rural residents had covered 81.5% counties. Public old-age pension for urban residents had covered 75.3% counties, and the insured population amount to 622 million, increasing 2.86 times than that in 2005. In 683 counties, public old-age pension for urban and rural residents were combined to implement. Basic health insurance covering nationwide came true. The institution system of basic medical insurance for workers in urban enterprises, newly rural cooperative medical insurance and basic medical insurance for urban residents had covered all counties nationwide. The insured population had reached over 1.3 billion, increased 2.77 times than that in 2005. In 189 counties, the basic medical insurance for urban and rural residents were combined to implement. The unemployment, work injury and maternity insurances synchronized to implement with 10
  • 11. public old-age pension and basic medical insurance for workers in urban enterprises. The insured population reached 142 million, 170 million and 122 million respectively. 1.2.2 Social Assistance The object of social assistance in China is to gurantee the minimum living standard for the low income population. The financing is all undertaken by public finance. It can be divided into three classes. The first class is usual assistance, such as minimum living standard security system in urban and rural and the assistance institution for rural “five guarantees”. The second class is emergency assistance, such as disaster assistance. The third class is temporal assistance, such as medical assistance, assistance for urban vagrants and beggars and so on. By the end of 2011, the objective population of minimum living standard security system for urban residents had reached 22.5627 million; the objective population of minimum living standard security system for rural residents had reached 52.9828 million, and the objective population of rural “five guarantees” had reached 5.7862 million. In 2011, the medical assistance fund for urban and rural financed 66.4935 people to attend health insurance, directly help 23.6727 million persons in post medical curing. 11
  • 12. 1.2.3 Social Welfare The social welfare institution, including old-age welfare, disable welfare and children welfare, has gradually improved. Its key points are assisting the old, helping the disabled and aiding orphans. By the end of 2011, in the whole nation, the social welfare organization were 42.5 thousand; the nursing beds were 3.2105 million; the population of adopted old persons, disabled persons and children were 2.3792 million; the social welfare enterprises absorbed 628 thousand disabled persons to obtain employment. 1.2.4 Veteran Benefit and Placement The veteran benefit and placement is a special policy treatment for the veteran, military personnel in active service and their families. It is characterized by honor, compensation and preferential treatment, including veteran placement, preferential treatment for military personnel in active service and soldier’s family, compensation the bereaved family, and placement for the military retired cadres. 1.2.5 Housing Security Housing security is comprised of housing accumulation fund, economy housing and low rent housing. The housing accumulation fund plan is forced to build by national regulations, covering urban employees. 12
  • 13. The accumulation fund is operated by government, financed by employer and employee. The low rent housing is financed by government, provided to the poor family by free or low rent. It used dynamic management measures by personal application and verifying qualifications. The economy housing is built by the qualified real estate companies, which acquire tax preferential policy, and is sold to the low income family according to government regulations. 1.2.6 Charities The government supports and encourages social organizations and social members to conduct charitable donation and social mutual assistance by the tax preferential policy. The government guides and support charities development, energetically cultivates public welfare and charitable social organizations. By far, the social donation networks have formed. Commercial insurance is also a component of social security system. It is located to meet the requirement of high income group, who would like to improve security level. The insurance is managed by commercial insurance company, operated by market. The government initiates the residents with economic capability to purchase all kinds of life insurance and health insurance production of commercial insurance companies according to personal preference. 13
  • 14. The framework of social security system in China is shown in the followed figure1: The framework of social security system The special care and Housing security Charity and commercial Social insurance Social assistance Social welfare placement insurance the placement for Low rent housing Old age Social welfare fot the retired soldier Minimum living standard odd pension security system for urban and rural residents s Economical housing medical The placement for insurance Social welfare for Retired army cadres children The five guarantees Maternity The special care for Housing insurance active soldier accumulation Social welfare for the fund Emergence assistance disable for victims Unemploymen t insurance The special care for the military dependent medical assistance Work injury insurance Preferential treatment for the Assistance for Vagrants armymen victims’ and beggars family members Figure1. system framework of social security in china PRC 1.3 Social Security Fund The social security fund is financed by two types. The social insurance fund is financed by employee and employer’s contributions and public finance. The social assistance and social welfare is mainly financed by public finance. In 2011, 18 items of social security funds inflowed ¥2840.205 billion, outflowed ¥2110.017 billion. The year- end accumulative surplus was ¥3.111859 trillion, increasing 312.79%, 299.78% and 435.24% than that in 2005 respectively (shown in table 1). Table 1: social security inflows and outflows and surpluses in 2011 (unit: billion,RMB) 14
  • 15. Social Inflows Outflows Surplus in the end of year security funds amount ratio amount ratio amount Ratio Social 2619.453 92.22% 1907.001 90.37% 3030.372 97.38% insurance Social 185.659 6.54% 171.873 8.15% 64.535 2.07% assistance Social 35.093 1.24% 31.143 1.48% 16.952 0.55% welfare Total 2840.205 100.00% 2110.017 100.00% 3111.859 100.00% In 2011, among 2619.453 billion of social insurance inflows, the employers’ contributions, employees’ contributions, public finance and other finance were 1261.491 billion, 717.796 billion, 539.148 billion and 101.018 billion, amounting for 48.16%, 27.4%, 20.58% and 3.86% respectively (shown in figure 1). Among 220.752 billion of social assistance and social welfare funds inflows, the public finance was 216.386 billion, and other finance was 4.366 billion, amounting for 98.02% and 1.98%. public finance the employers’ contributions, employees’ contributions other finance Figure 2: the financing resources of social insurance fund in 2011 Figure 2: the financing resources of social insurance fund in 2011 In 2011,among 18 items of social security funds from public finance, 15
  • 16. the central government and local government invested 450.876 billion and 304.658 billion, increasing 534.15% and 632.01% than that in 2005 respectively. The proportion of social insurance, social assistance and social welfare invested by central government are 60.67%, 64.74 and 15.27%. (Shown in table 2) Table2: the public finance investment from central and local governments (unit:billion, RMB) Public finance from central Total public finance investment Public finance from local government Item government Amount Ratio Amount Ratio Amount ratio Social 539.148 100.00% 327.107 60.67% 212.041 39.33% insurance Social 183.396 100.00% 118.733 64.74% 64.663 35.26% assistance Social 32.99 100.00% 5.036 15.27% 27.954 84.73% welfare total 755.534 100.00% 450.876 59.68% 304.658 40.32% The surplus of social insurance fund is totally ¥3030.372 billion, of which ¥7.183 billion is managed by People’s Bank of China and China Agriculture Development Bank and central public finance special account. The left surplus is managed by provincial, municipal and county governments, and ratios are 38.08%, 35.61% and 26.31% respectively. In the terms of area, the ratio of surplus in east, middle and west part of China are 56.78%, 21.54% and 21.68% respectively. In terms of deposit status, the ratios of surplus in current account, time deposit and other status are 38.44%, 58.01% and 3.55%. The scale of China’s social security fund expands gradually. The fund is operated smoothly and steadily, which guarantee effectively all items of social security benefits payments. 16
  • 17. 1.4 Main Accomplishments 1.4.1 Achieving Basically the Building of Social Security System Covering Urban and Rural Areas, Promoting Social Fairness Strongly. Since 2005, China has promulgated more than 20 regulations on social security. The minimum living standard security system in rural has established. The pilot reforms of basic medical insurance for urban residents, newly rural cooperative medical insurance and public old-age pension for urban residents have been implemented, which first built the complete social security for rural and urban residents historically in China. The goal of social security of all people with basic living security has gradually put forward. The insured covered by newly rural cooperative medical insurance and public old-age pension for urban and rural residents had grown from 2700 million in 2009, when the institutions had been established, to 3550 million in 2011, increasing 12.15 times. The insured covered by basic medical insurance for urban residents and basic medical insurance for urban and rural residents reached 2160 million in 2005, over 1 billion in 2011, increasing 3.89 times. The coverage of social insurance in rural areas expands rapidly. The insured of public old-age pension and basic medical insurance were 161 million and 345 million in 2005, over 600 million and 1.3 billion at the end of 2011, 17
  • 18. increasing 2.86 and 2.77 times respectively. (The coverage of five social insurances since 2005 is shown in Figure 3) With more energy on social assistance and more improvement of assistance standard, the coverage of social assistance expands gradually. In the end of 2011, the population covered by minimum living standard security system had reached 75.5455 million, increased 1.59 times than 29.1752 million in 2005. (The changing of population of minimum living standard security system in urban and rural in 2005-2011 can be shown in Figure4.) 18
  • 19. minimum living standard security system in urban minimum living standard FIigure4.The changing of population of minimum living security system standard security system in urban and rural in 2005-2011 in rural In terms of social security investment, the key points are inclining to less developed areas and rural areas to narrow the gap of social security between regions. Since 2005, in the investment of public finance of central government, the proportion of middle and west parts of China is kept 80%. The investment in middle and west parts grows from ¥54.757 billion to ¥360.995 billion, increasing 5.59 times. (The public finance investment from central government in east and middle& west area in 2005-2011 is shown in Figure 5) 19
  • 20. The public finance investment of central government to peasants expands gradually. The subsidy to newly public old old-age pension for rural residents grows from ¥1.076 billion in 2009, when the institution was built, to ¥35.206 billion in 2011, increasing 31.73 times. The subsidy to newly rural cooperative medical insurance grows from ¥0.542 billion in 2005 to ¥80.177 billion in 2011, increasing 146.93 times. (The public finance subsidies from central government to newly public old old-age pension for rural residents and newly rural cooperative medical insurance in 2005-2011 is shown in Figure6) 20
  • 21. old-age pension for rural residents newly rural cooperative medical insurance Figure6. The public finance subsidies from central government to newly public old old-age pension for rural residents and newly rural cooperative medical insurance in 2005-2011 1.4.2 Increase Social Security Level Steadily and Improves People’s Lives Obviously In recent years, China improves the social security level in old-age pension, medical insurance and minimum living standard security steadily. That the old will be looked after, the sick will be medicated, and the people in difficulty will be helped, and they could enjoy the national development fruits. In terms of public old-age pension, from 2005 to 2011, the benefit level of enterprise workers has been increased 7 times consecutively, from ¥713.25 in 2005 to ¥1516.68 per capita monthly with the yearly growth rate of 13.4%. The extent of rising is 10.03 percentages higher than CPI in the corresponding period. (The benefit changing of public old-age pension for workers in urban enterprises in 2005-2011 is shown in Figure7.) 21
  • 22. Yuan/moth/personn Figue7. The benefit changing of public old-age pension for workers in urban enterprises in 2005-2011 In terms of basic medical insurance, the reimbursements ratios of three sub-items which are basic medical insurance for workers in urban enterprises, newly rural cooperative medical insurance and basic medical insurance for urban residents has heightened gradually in the scopes of the “three catalogs” (basic pharmacy catalog, basic service facility catalog and basic service item catalog) of the national basic medical insurance. By the end of 2011, the ratios had reached 77%, 62%, and 70%. The factual reimbursement ratio of basic medical insurance has also increased steadily in recent years, especially in rural areas. The factual reimbursement ratios of basic medical insurance for workers in urban enterprises and basic medical insurance for urban residents increased from 58.91% and 45.00% in 2005 to 64.10% and 52.28% in 2011, increasing 8.81% and 16.18% respectively. The factual reimbursement 22
  • 23. ratios of newly rural cooperative medical insurance and basic medical insurance for urban and rural residents increased from 24.80% and 23.78% in 2005 to 49.20% and 44.87% in 2011, increasing 98.39% and 88.69% respectively. (The changing of factual reimbursement ratio in all sub-items of basic medical insurance in 2005-2011 is shown in Figure 8) Figure8. The changing of factual reimbursement ratio in all sub-items of basic medical insurance in 2005-2011 In terms of minimum living standard security system, the average security level for urban and rural residents increased from ¥154.3 and ¥74.83 in 2005 to ¥288.04 and ¥140.29 per capita monthly in 2011, increasing 86.68% and 87.48% respectively. The subsidy level increased from ¥73.34 and ¥28.37 in 2005 to ¥227.92 and ¥100.07 per capita monthly in 2011, increasing 210.77% and 252.73% respectively. (The changing of accumulative rate of minimum living standard security and subsidy level in urban and rural in 2005-2011 is shown in Figure9.) 23
  • 24. Figure9. The changing of accumulative rate of minimum living standard security and subsidy level in urban and rural in 2005- 2011 From 2006 to 2011, the average growth rates of minimum living standard security in urban and rural are 10.99% and 11.4%, 7.62 percentages and 8.03 percentages higher than the average growth rates of CPI in the same period. Especially since the universal implementation of minimum living standard security system in rural nationwide in 2007, the average growth rate of security level is 14.02 percentages higher than the average growth rate of CPI at the same period. (The changing of growth rates of minimum living standard security in urban and rural and CPI in 2006-2011 is shown in Figure 10). 24
  • 25. Figure10. The changing of growth rates of minimum living standard security in urban and rural and CPI in 2006-2011 1.4.3 Solves the Problem of History Leave-over and Security of Special Groups, Promotes the Harmony and Stability of Society. Chinese government keeps solving the history leaving over problems of social security, and improving the living conditions of land acquisition peasants, low income and special difficulties groups, which provides a good condition for industrialization, urbanization and state-owned reforming. By the end of 2011, 5 million uninsured retired people in collective enterprises and 20.9 million land acquisition peasants had been covered by old-age pension. 10.31million retired people in bankrupt enterprises and workers in running-difficult enterprises had been covered by medical insurance. 3.12 million “workers with work injury in early times ” had been covered by the social pool of work injury insurance. 25
  • 26. Meanwhile, public finance from central government and local governments have keeping investing in medical assistance fund. The difficult population who get financially assisted by medical assistance fund to be insured increased gradually, and the person of direct assistance to post remedied also increased. The population by assistance to be insured increase from 4.8402 million in 2005 to 66.4935 million in 2011, increasing 12.74 times. The person of direct assistance to post remedied increased from 2.5373 million in 2005 to 23.6727 million in 2011, increasing 8.33 times. (The changing of population who were difficult financially assisted by medical assistance fund to be insured and the person of direct assistance to post remedied is shown in Figure 11.) Figure11. The changing of population who were difficult financially assisted by medical assistance fund to be insured and the person of direct assistance to post remedied 1.4.4 Stands up in Natural Catastrophe, Safeguards the Basic Living of Victims by Disasters 26
  • 27. The social security funds play a positive role in facing natural disasters, solving the temporary difficulties such as food, clothing, housing and hospitalization, transferring, rescuing, and settling the victims and reconstruction. Since 2005, central government and local governments invested ¥141.07 billion of living assistance fund for natural disaster, of which ¥102.91 billion were from central public finance, and ¥38.16 billion were from local public finances. 595.884 million victims were assisted totally, of which 106.433 million people were transferred and settled in emergency, 489.451 people were assisted for living through winters and springs, 219.13 million houses were reconstructed. After natural catastrophes, such as Wenchuan earthquake, Yushu earthquake and Zhouqu mud avalanche, the public finance from central government invested in living assistance amounting to ¥76.924 billion. In disasters, 9.4779 million people were rescued, and 5.932 million houses were reconstructed. The timely investment of emergent funds makes victims settled down properly and the victims’ basic living guaranteed effectively. 1.4.5. Expand the Scale of Social Security Fund, Provides an Important Support for Economic and Social Development. The scale of social security funds expands rapidly, which establishes a solid material foundation for the sustainable development of social 27
  • 28. security system. By the end of 2011, the accumulated surplus of social insurance funds had reached ¥3.030372 trillion, increased 4.34 times than that at the end of 2005. The average growth rate is 32.19%. 98% of funds were deposited in financial organizations. (The changing of accumulated surplus of social insurance funds in 2005-2011 is shown in Figure 12.) Figure12. The changing of accumulated surplus of social insurance funds in 2005-2011 Public finance from central and local governments has kept investing in social security. The social security investment from local public finance including the central government transferring payment increased from ¥341.845 billion in 2005 to ¥1416.4 billion in 2011, increasing 314.34%. It is higher than the growth rates of local public fiancéinflows and outflows at the same period, which are 247.32% and 267.4%, 67.02 percentages and 46.94 percentages higher respectively. (The growth rate changing of social security investment from local public finance, local public finance inflow and outflow is shown in Figure 13. ) 28
  • 29. Figure13. The growth rate changing of social security investment from local public finance, local public finance inflow and outflow The outflows of 18 items social security funds increased from ¥527.8 billion in 2005 to ¥2.110017 trillion in 2011, increasing 299.78%. (The changing of the outflows of 18 items social security funds is shown in Figure 14.) Figure14.The changing of the outflows of 18 items social security funds The improvement of social security system, the expansion of inflows 29
  • 30. and outflows, and the fast accumulation of funds play a positive role in strengthening public confidence, promoting social fairness, pulling consumption, boosting domestic demand, tackling international finance crisis effectively, promoting the transform of economy development model, and also providing multiple support for economy and social development. 1.4.6 The System of Social Security Management and Administration has Formed Basically. By the end of 2011, the system and network of social security management and service has constructed gradually, which levels of Social Security Administration Department are as main organizations including banks and kinds of service organizations. There are 11.9 thousand Social Security Administration Department nationwide. Public service facilities of civil affairs are constructed greatly. The abilities of basic security and service are keeping strengthening. The community service system gradually developed. Meanwhile, social insurance supervision committees are built in 28 provincial levels, 217 municipal levels and 1189 county levels. The society is keeping supervising intensively. Levels of governments organize relevant departments to launch special supervision and examination time after time, to promote the standardization of fund management. 30
  • 31. 2. The Main Existing Problems The reform of social security system in China is using the model of “fording the river by feeling for the stones”. Surrounding the reform of national economy mechanism, embarking from handling the most urgent problems, the social security system is designed by groups, managed by departments, implemented by regions, the way of which push the development of social security system growing out from nothing and developing rapidly. However, with the deepening reform and accelerating urbanization, the improving of the economy and social development, the advancing of democratic rule of law, and the gradual expanding of population mobility, flaws including the relevant institutions lacking of linkage, scattering and overlapping gradually appeared. So some issues should be improved and improved further. 2.1 The Issue of Institutional Fairness Firstly, some groups have uninsured. Peasant-workers also belong to enterprise workers, and should be insured in urban social insurance. However, the proportion of insured peasant-workers in this system is obviously low. Take the public old-age pension as a example, by the end of 2011, the population of peasant-workers has reached 252.78 million. However, the population of peasant-workers insured in public old-age 31
  • 32. pension for workers in urban enterprises were 41.4 million, insured in unemployment insurance were only 23.91 million, insured in basic medical insurance for workers in urban enterprises were 46.41 million, and insured in work injury insurance were only 68.28 million. The insured rates were 16.3%, 9.5%, 18.4%, and 27% respectively, which are obviously very low. Most of peasants-workers could not benefit from the urban basic social security. The situation of peasant-workers insured in public old-age pension for workers in urban enterprises in 2006-2010 is shown in figure15. Figure15. The situation of peasant-workers insured in public old-age pension for workers in urban enterprises in 2006-2010 Secondly, the social security policies in different regions do not uniformed. From the perspective of contribution policy, by the end of 2011, the contribution base were not carried out according to the law of social insurance in 21 provinces, 201 municipalities and 1252 counties, which regulates the base was calculated by the worker’s total salary. The kinds of factual contribution rates of public old-age pension for workers 32
  • 33. in urban enterprises were 16, and the highest was 22%, the lowest was 10%. It is that the contribution rate does not uniformed yet in 8 provinces. In some province, it was amounted to 12 kinds that the contribution rates were. In addition, the contribution rate or the contribution basis of social insurance was reduced by local decisions in 5 provinces, 4 municipalities, and 8 counties, the contributions were ¥51.734 billion less than it should be. The insured conditions of social insurance, such as age and “hukou”, were restricted by local decisions in 3 provinces, 6 municipalities, and 9 counties. The social insurance policies in 16 non-dependent administrated development zones were carried out differently from local administration. So the disparity of contribution level varied greatly, and the contributions for enterprises and individuals were unbalanced. Thirdly, the benefit level gap is too big for some groups. Currently, public old-age pension for workers in urban enterprises and institution for old-age security of retirees in public organizations exist at the same time in China. This dual-track system of enterprise and public organizations leads to the increasing gap between workers and cadres, which bring obvious problem of social unfairness and great social conflicts. According to census, the pension per capita monthly in governments and public organizations is 1.07 and 1.1 times of those in enterprises in 1990, and 1.54 and 1.57 times in 2000. In the 21st century, the difference amplified 33
  • 34. further, and they became 2.25 and 1.89 times in 2010. Although the pension level for enterprises retirees are raised consecutively in 8 years, the absolute gap is still increasing. In more than 20 years, Chinese economy grows rapidly, the pension for enterprises workers grows more, and the average yearly growth rate reaches 12%. But the growth rate of pension for public organizations reaches 16%. The gap is continuously widening. 2.2 The Linkage among Different Insurances do not Effectively Realized Completely Yet. Currently, social insurance system is designed by groups. There are not explicit linkage among different institutions. Even if in the same insurance institution, the policies were implemented variously in different regions. This brings the problems of repeated contribution, transferring and continuing contribution. By the end of 2011, 1.1242 million people has participated public old-age pension for workers in urban enterprises, newly public old old-age pension for rural residents and public old-age pension for urban residents at the same time; 10.8611 million people has contributed basic medical insurance for workers in urban enterprises, newly rural cooperative medical insurance and basic medical insurance for urban residents repeatedly, which brings public fiancé subsidy ¥ 1.769 billion excessively; 92.7 thousand people receive pension 34
  • 35. benefits repeatedly of ¥684.529 million; 95.7 thousand people get medical costs reimbursement of ¥147 million; 2.404 million people have two or more trans-provincial personal accounts of public old-age pension for workers in urban enterprises nationwide. In addition, the problems of old social security for rural areas are complicated, and promoting of new social security for rural areas is heavy in some regions, so there are problems that the funds of old social security for rural areas have not transferred into new social security for rural areas. 2.3 The Operation Mechanism of Social Security Need to be Improved. Currently, various works of social security are governed by different departments, and operated by different administrations. Contributions are also collected by different organizations. The coordination and connection among different departments is not enough, which in turn influences the whole executing effects of policies to some extent. For example, there are some problems that lead the policy of financing the poor to be insured in medical insurance by the medical assistance funds is not carried out completely yet in some regions, such as the coordination mechanism operates ineffectively because of basic medical insurance and medical assistance are managed by many departments, the service capabilities of social assistance in grass-roots level in some regions are 35
  • 36. not enough, the capabilities of management are weak, the working methods are still backward and so on. By the end of 2011, in 2514 counties, the accumulated surplus of medical assistance in urban and rural areas was ¥12.639 billion, the same as 80.28% of the public finance investment in medical assistance in those regions at the same year. However, according to the policies, the proportion of people covered by minimum living standard security system who was financed by medical assistance fund to be insured in medical insurance was only 63.69%. In random selective 7522 enterprises which are audited in five items of social insurance contributions collected by different administrations, the contribution base of 6123 enterprises was checked and ratified inconsistently in every item of insurance, and the ratio is 81.4%. In addition, special funds are not carried out for special purposes strictly in some regions, ¥30.592 billion social security funds are mixed used among different social security items. 3. The Main Situations of Social Security to be Faced with Currently, China is and will be in the primary stage of socialism in the long run. The main contradiction of social security is the conflict between the people’s growing social security needs and the backward social production. Meanwhile, many challenges to social security system are brought by the profound adjustment of economy structure, the 36
  • 37. accelerating transformation of social structure, the sharp transformation of population structure. First, the aggregate economy grows continuously, but the growth rate becomes slow down. Currently, China is at the middle stage of industrialization and at the period of driving urbanization fast. The endogentic dynamics of economy growth is powerful. The healthy fundamental situation is not changed in the long run. After 30 years consecutive high speed growing, the economy will still grow steadily in a long term. However, China need to be farewell to traditional extensive growth pattern, accelerate to transform economy development pattern, push the adjustment of industry structures, and pay attention to the quality and efficiency of economy. In addition, because of the uncertainties brought by the economy globalization and international financial crisis, Chinese growth rate will slow down in the future. This will lead some firms bankrupt, lock, merge and transform. The flexible employed people will continue to increase since the third industry is strived to develop, and the poor will also be likely to grow. Those above mentioned negative factors will challenge social security system. Second, with the rapid urbanization, the floating population will keep in a large scale in long term. It is estimated that the level of China’s urbanization in 2015 will be close to 55%, 60% in 2020, 70% in 2030, and the urban population will reach 1 billion in 2030. Thus, the great 37
  • 38. amount of floating peasant workers between urban and rural areas will greatly increase the difficulty in the connection of urban and rural social insurance institution. Third, the primary distribution has great disparity, and the adjustment of secondary distribution has greatly difficulty. Currently, the income differentials between urban and rural area exceed 3:1. The income of highest 10% income group is 23 times of that of lowest 10% income group. The proportion of urban and rural poor population in China is still large in the future, and the difficulty of breaking away from poor will broaden gradually. The conflicts between fairness and differentiation will still be faced in improving social security system and developing the adjustment function of redistribution. In one hand, different social classes expect to incline to urban and rural low income people by redistribution, to narrow the income gap, to reflect social fairness and to promote social harmony. In the other hand, different classes start from theirselves interests, keep comparing benefits, appeal kinds of desires. It is not only to narrow different classes’ benefits, but also to have overall consideration of different interests. This is the long term tasks to reform and improve the social security system. Fourth, the aging of population is accelerating. Compared with the aging of population in developed countries, there are 3 characters of China’s aging of population. The first is coming early. Western countries 38
  • 39. go to aging behind the completion of industrialization. But China goes to aging without achieving wealthy. The second is coming soon. The aging in western countries from 5% to 10% uses 40 years commonly, but it is 18 years in China. In 2010, the 65 and above years old people in China reached 120 million, accounting for 8.9% of total population. It is predicted that it will be 13% in 2020, approximate 30% in 2050, and the population of 65 and above years old will reach 400 million at that time. The third is lasting long. Because of large population base, it is perdicted that the aging peak will appear in 2030s, and will keep 30 to 40 years. In 2050 there will be one old person among 4 persons by preliminary calculation. 4. The Objective of Social Security Development in China The basic objective of social security system in China is to build the whole people sharing social security institution, mechanism and system with Chinese characteristics, to fulfill that the whole people are insured, the way of security is variety, the financing resources are diversified, the management and service is socialized, to provide the harmonious and steady safety net for fulfilling comprehensive well-off society. Five aspects should be emphasized. First, the security items should be complete, thus everyone could enjoy basic security. Second, the benefits should be appropriate and could guarantee the basic living 39
  • 40. effectively. Third, the management and service should be improved and could guarantee the convenient, swift and comprehensive services for citizens. Fourth, the institution should be customized and the funds could balance in the long run to realize sustainable. Fifth, the way of security should be multilevel to meet people’s higher needs. 5. The Main Tasks of Contemporary Social Security Reform in China The main tasks of accelerating the development of social security system with Chinese characteristics are to strengthen the fairness of institution, to adapt liquidity, and to secure the sustainability. 5.1 Strengthen the Fairness In first, institution absence should be made up quickly, and the social security system should be constructed perfectly. Currently, the social security system has covered urban and rural residents. However, some people have still not been absorbed in current institutions such as the peasant-workers, flexible employment groups and so on. The most unfairness is without institutional security. Now, the prominent problem is that, the contribution rate of public old-age pension for workers in urban enterprises, which the employer should contribute 20% of worker’s salary and the worker should contribute 8% of his salary, is too high to 40
  • 41. make some enterprise and people without employers have the ability to contribute, and also make many small firms and low income group people are not able to contribute,. So the measures of reducing contribution base and rate properly should be taken to encourage and guide private enterprises and flexible employed groups to participate in basic old-age pension and expand coverage. The history leave-over problems in the process of mechanism transferring should also be solved positively by adopting public finance investment and multiple channels of financing. Meanwhile, the institutions for the sick and the disable allowance and the survivor subsidy should be built, thereby the security system for the sick, the disabled and the survivor are integrated in the social security system. In second, the old-age subsidy institution should be carried out for the urban and rural old-age people without any security. Now, the population of old-age people without any security in rural and urban areas is about 100 million. The problem of their impoverishment is more and more prominent. The national old-age subsidy institution dominated by the central government should be developed gradually. In third, the whole benefit level of basic security should be improved gradually, and the benefit differences among different groups should be defined properly. With the development of economy, the social security benefit level should be improved in plan and step by step. The people should share more fruits of economy and social development. In the time 41
  • 42. of improving the whole benefit level, the benefit differences among different groups should be defined properly, and the function of social security to adjust social allocation should be utilized. The problem of benefit gap between enterprise workers and public organization cadres at the same level should be controlled by policy adjustment to prevent the gap increasing further. Meanwhile, the benefit gaps between workers and residents, urban and rural areas should be narrow gradually, and the minimum living standard between urban and rural areas should also be narrow gradually. 5.2 Adapt Liquidity In first, the administrated level of social security should be heightened. The administrated level of public old-age pension for workers in urban enterprises should be enhanced to the national level gradually based on achieving the administrated level of provincial. The problems of transferring and continuing of the records of social security for liquid groups should be solved. The problem of medical insurance needs to be resolved is the settlement of medical costs among different areas. The administrated level of basic medical insurance, unemployment insurance, and work injury insurance should be realized gradually in municipal level, and balanced in provincial level. Some regions should try to be realized in provincial level if possible. 42
  • 43. In second, the policy connections in the same institutions should be solved properly. The institution of public old-age pension for workers in urban enterprises and public old-age pension for urban and rural residents should be connected and transformed, to adapt the liquidity of labors moving between urban and rural areas. The transforming path between urban and rural health insurance institutions should be linked gradually, to guarantee the rights of different groups while moving between urban and rural areas. The medical security institutions for urban and rural residents should be uniformed. Combining with the reform of government organizations, the management and administration mechanism of social security should be straightened out further, and the resources of social security management should be integrated to improve the operation efficiency. In third, the social security information management system should be developed rapidly. The fundamental resolution is improving information level in solving the conflict between adapting liquidity and inability of social security management and service. The social security information management system should be built in uniform standard and could be access to nationwide networking, and could share data with other public management system. By the way of informatization, the contribution and benefit of the insured could be recorded timely and accurately. The system could follow, record, serve and guarantee the 43
  • 44. whole life of a person, and provide convenient, fast and excellent social security service for people. 5.3 Secure Sustainability First, social security funds should expand. The social security supporting ability should be strengthened, in securing the sustainability of social security, especially in replying to the challenges of aging peak. The following measures could be take consideration. The public finance expenditure structure should be adjusted further to increase the investment to social security. Based on the revenue of public finance, the proportion of social security to public finance should increase gradually. The single social security budget should be built, and the ratio of social security amount to GDP should be increased. The personal account of old-age pension should be made full. The “empty” of personal account in public old-age pension for workers in urban enterprises should be solved. The scale of national social security fund should expand, and the national strategy storage should be enriched. The investment channel of social security fund should be developed. The regulation on management of surplus and maintenance and appreciation of social security funds should be promulgated to solve the problems of fund squeezing, appropriating and depreciation. The supervision mechanism should be built to guarantee the funds safety. 44
  • 45. Second, the legislation of social security should be paced quickly. Combined with the implementation of the Law of Social Insurance, the “Interim Regulations on the Collection of Social Insurancet”, “Regulations on Unemployment Insurance”, “Interim Regulations on the Disable Employment Fund Management”, “Finance Institutions on Social Insurance Fund”,” Accounting Institutions on Social Insurance Fund” and etc. should be revised. The regulations of social insurance, social assistance and social welfare institutions linkage should be improved to build a thorough system of social security law and regulation system. Third, the mandatory age for retirement should be prolonged in proper opportunity. Prolonging the age for retirement is the priority policy in every country to replying aging. According to the facts of people’s improving health level and the extending life expectancy, in the premise of studying supply and demand in labor market and considering the psychological endurancee of people, the adjustment of retirement should be adjusted properly using flexible strategy. Fourth, the complementary security should be developed, and multi level security system should be built. The items of complementary social security not only include enterprise annuity, complementary medical insurance, and civil servant medical assistance, but also include commercial old-age pension, health insurance and social charity business. Currently, the development of complementary social security in China 45
  • 46. still lags, and it has limited influence on the whole social security system. The employer should be encouraged to build complementary insurance for employee, through more powerful preferential tax policy. Meanwhile, the market resources should be fully utilized, and all kinds of social organizations and market subjects should be guided and standardized to set up complementary social security business. 46