The Weakest Link in Graying China’s Social Security System, Private Sector Policy and Corporate Social Responsibility

Jacylyn Y.J. Shi, Geneva School of Diplomacy and International Relations, Switzerland

Abstract

Reform of existing social security system in China faces unusual challenges given the multi-faceted obstacles specific to China. The fast population ageing and expected falling worker-retiree ratio from 6.6 in 2004 to 2.3 by 2030, and the threat to the traditional model of dependence on family for old-aged life security by the one-child policy, the increasing ‘empty net’ rate, in addition to the limited pension or health care coverage to today’s workers, the future retirees, present a dire picture to policy makers. How successful China could tackle the “getting old before getting rich” challenge determines whether China can achieve its aspiration of becoming a prosperous and stable developed economy.

Many policy proposals so far have focused on the pension system reform per se, neglecting the underlining problem that arises from China’s special socioeconomic challenges. The paper aims to identify the weakest link in the pension system and solution to this group of people’s old-age security. The paper starts with examining the key features that constitute the unique challenges arisen from China’s ageing problem, in particular the skewed concentration of pension coverage towards urban workers from state sector, and the risk of diminishing demographic bonus. It identifies the exclusion of rural migrant workers from social security net being the “weakest link” of the pension reform, failure to include them will leave large number of rural families further unprotected. Next, the paper elaborates on the reasons why non-state sector inclusion is crucial to rural migrant workers’ pension by analyzing the correlation between the development of non-state sector and diversification of rural income in the past three decades. It argues that applying CSR strategy could be premature by examining the key concerns that impede private sector from actively participating in pension regime, based on which the paper provides recommendations on the key areas for policy improvement in order to enable and facilitate private sector to contribute to the national pension scheme, including central government role in creating predictable macro policy environment, and a unique way to apply corporate social responsibility – related policies to be undertaken at local government level.