China

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Chinas Social Reform and Re-building the
Welfare System

• Lu Mai
• Secretary General
• China Development Research Foundation

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Content

• Chinas Economic Growth and Social Development
• Revamping Chinas Social Security System
• Poverty Reduction
• Education
• Old-age Support
• Medical Care
• Housing
• Characteristics of the Chinese welfare system and
  Difficulties in Revamping it
• Characteristics
• Welfare policies towards rural migrant workers
• Reforming public finance
• Reforming government performance evaluation
• Conclusions

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Chinas Economic Growth and Social Development
Chinas economy has been growing rapidly since
the start of reform and opening in 1978.
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Chinas Human Development Index increased
significantly.
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• Social reform and the rebuilding of the welfare
  system a matter of great urgency
• Income gap is widening
• Employment uncertainty and insecurity
• Underdeveloped social services

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Income gap is widening.
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Human development gap between town and country is
widening
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• Goal of social development
• Common prosperity
• Ensuring a comfortable life for every Chinese
  (2002)
• Harmonious society (2006)
• New phase in Chinas reform and opening social
  reform and revamping of the welfare system

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Content

• Chinas Economic Growth and Social Development
• Revamping Chinas Social Security System
• Poverty Reduction
• Education
• Old-age Support
• Medical Care
• Housing
• Characteristics of the Chinese welfare system and
  Difficulties in Revamping it
• Characteristics
• Welfare policies towards rural migrant workers
• Reforming public finance
• Reforming government performance evaluation
• Conclusions

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Revamping Chinas Social Security System
Traditional social security system in China
Traditional system State provision
Traditional system Enterprise provision
Traditional system Rural collective provision
SOEs reform
Collapse of peoples commune
Since the 1990s, the Chinese government has taken
numerous steps to revamp the social security
system in areas of poverty reduction, old-age
support, education, medical care and housing.
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• 1. Poverty Reduction
• Reform of the economic and social system has
  proven the most effective means of reducing
  poverty in China
• Two-pronged approach development and relief

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• 1.1 Development policies
• Rural areas three large-scale relief programmes
  since 1986
• Increase government investment in and
  low-interest loans to impoverished rural areas
• Enable farmers to improve production conditions
  and poor villages to improve infrastructure
• Urban areas Creating employment
• Support for securing small loans and training and
  preferential taxation policies
• Paying people to provide public and community
  services

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• 1.2 Relief policies
• System of subsidence allowances for the urban
  poor (1999)
• System of subsidence allowances for the rural
  poor (2004)

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• 2. Education
• Improve nine-year compulsory education
• Support higher education and secondary vocational
  education
• Education expenditures accounted for 2.86 per
  cent of GDP in 2006.
• The goal is to increase this to 4 per cent of
  GDP.

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• 3. Old-age support
• 3.1 Urban areas Three-Pillar Model(1997)
• A mandatory publicly-managed pillar, a mandatory
  privately-managed pillar and a voluntary pillar
• issuesthe shortfall in accounts held by people
  who worked under the old scheme but will paid
  under the new one (the middle men) the
  endowment insurance scheme still plagued by
  limited coverage the management and investment
  of the funds

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• 3.2 old-age security in the countryside(1992)
• Funded entirely by the individuals
• Contemporary reformallocate more funds to
  subsidize rural endowment
• Besides, the Chinese Government has also borne
  the cost of endowment insurance for two
  categories of rural population Infirm or
  childless elderly people rural parents over 60
  years old who only have one child or two
  daughters.

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• 4. Medical care
• 4.1 Market-oriented reform
• Significant expansion of medical resources and
  improvement in medical facilities
• Problemmedical expenses grow faster than
  personal income a large part of it is borne by
  patients.

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• 4.2 Urban and rural medical care system

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• 5. Housing
• Housing reform (1998)
• the poorest families can rent subsidised
  apartments provided by the government or their
  employers
• the lower-to-middle income households can buy
  inexpensive apartments whose cost is subsidised
• the more prosperous can either buy or rent
  commercial apartments at market price
• Problemsome local governments encouraged the
  development of commercial housing at the expense
  of affordable or low-rent housing

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Content

• Chinas Economic Growth and Social Development
• Revamping Chinas Social Security System
• Poverty Reduction
• Education
• Old-age Support
• Medical Care
• Housing
• Characteristics of the Chinese welfare system and
  Difficulties in Revamping it
• Characteristics
• Welfare policies towards rural migrant workers
• Reforming public finance
• Reforming government performance evaluation
• Conclusions

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Characteristics of the Chinese welfare system
and Difficulties in Revamping it

• 1. Characteristics
• A dual structure on the way to integration
• Wide coverage with low levels of provision
• Rapidly increasing burden on the government
• Market-based
• Issues
• Welfare policies towards rural migrant workers
  still almost blank
• Public finance and government performance
  evaluation reform needed

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• 2. Welfare polices towards rural migrant workers
• Still left to fend for themselves

Urban residents Rural residents Migrant workers
Old-age security Endowment insurance Land
Medical care Basic medical insurance Co-operative medical care Subsidised treatment of major illnesses
Education Free Free subsidies
Labour protection Industrial injury insurance Industrial injury insurance
Housing Subsidies low rent Self-built
Poverty relief Urban living allowances Rural living allowances
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• Involves the value and policies pursued by the
  government as much as its financial capacity and
  governance skills
• Budgetary allocations from both the central and
  provincial governments needed

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• 3. Reforming public finance
• 3.1 Improve the structure of public spending
• 3.2 Establish sound public finance
• 3.3 Improve the transparency of public finance.

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• Government revenue increased rapidly.

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• Government investment in development activities
  should be reduced and spending on administrative
  overhead strictly controlled.

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• Encourage greater public participation

Participatory Budget Reform in China
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• 4. Reforming government performance evaluation
• Market failure vs. Government failure
• Experience of OECD countries be introduced to
  China.

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Content

• Chinas Economic Growth and Social Development
• Revamping Chinas Social Security System
• Poverty Reduction
• Education
• Old-age Support
• Medical Care
• Housing
• Characteristics of the Chinese welfare system and
  Difficulties in Revamping it
• Characteristics
• Welfare policies towards rural migrant workers
• Reforming public finance
• Reforming government performance evaluation
• Conclusions

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Conclusions

• Revamping the welfare system will help improve
  the living conditions of all people across China,
  but particularly those in the low-income bracket,
  thus leading to greater stability and harmony in
  society
• The people will have more incentives to spend.
  And as urbanisation advances, the domestic market
  will further expand

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• Labour productivity will grow, as will labour
  costs in China. This will put more pressure on
  the industries to modernise
• The service sector, from health to education,
  insurance, banking to real estate, will register
  robust growth.

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Acknowledgements

• CDRF has received generous support in its work
  from the Government of UK and many British
  companies
• DFID HSBC
• Vodafone BP
• Shell Rio Tinto
• Anglo American Tesco
• Cambridge China Development Trust

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Thank you!lumai_at_cdrf.org.cnwww.cdrf.org.cn