Caixin
Jun 23, 2020 09:23 PM
ECONOMY

China Urged to Drop Family Planning Controls, Reform Pension System to Combat Aging Society

Seniors exercise on Thursday in Dalian, Northeast China’s Liaoning Province.
Seniors exercise on Thursday in Dalian, Northeast China’s Liaoning Province.

China should scrap all restrictions on family planning, overhaul its pension system and boost productivity in order to cope with the problems of an aging society and declining labor force, a government think-tank has urged in a new report.

The falling birthrate and shrinking workforce will make it increasingly difficult for the economy to support the rapid growth in the number of elderly, the China Development Research Foundation, an organization affiliated with the State Council's Research Development Center, wrote in a report released on June 11.

The population aged 65 and over in China is estimated to rise to about 314.8 million by 2035 from an estimated 181.6 million in 2020, according to the China Development Report 2020: China’s Population Aging Development Trends and Policies. The cohort will account for 22.3% of the total population in 2035 and 27.9% in 2050, compared with 12.6% in 2019.

The working-age population, defined as those aged 15-64, will drop to 900 million in 2035 from 980 million in 2019, the report estimated. As a result, the proportion of people of working age in the overall population will decline to 63.9% from 70.4%. By 2035, 10 workers will be needed to support three retirees, the report estimated, up from 1.7 retirees in 2018 and 1.16 in 2009, according to government data.

POPULATION CHART

The government needs to speed up its overhaul of the pension system given the growing burden of an aging society, Zheng Bingwen, director of the Chinese Academy of Social Sciences’ World Social Security Institute, said at a June 11 online press briefing to discuss the report.

China currently doesn’t have a national pension system — rather each provincial-level government has its own pension, health care, unemployment, occupational injury and housing funds. Contributions come from individuals, enterprises, and government subsidies. In some provinces, pension funds are running deficits as the central government has ramped up efforts to support businesses by slashing pension contributions.

The government has been taking steps to change the state pension system. In July 2018, for example, a central adjustment fund was set up to collect revenue from the pension pots of provincial-level governments and put it into a national pool that would redistribute funds to regions struggling to pay their retirees.

The report put forward several proposals and targets for reform of the pension system, including achieving a nationally coordinated and managed basic old-age insurance system by 2030 at the latest and narrowing the gap between urban and rural workers' old-age insurance.

Zheng said that the government should also allow individuals to work longer if they want to, as the current retirement age is relatively low compared with other countries. In China, men can give up work when they reach 60, while the retirement age is 55 for female government workers and 50 for female blue collar workers. That compares with 65 in the U.K and 66 in the U.S., although governments in both countries are gradually raising the threshold.

Scrap curbs

Tackling the aging problem from the other end, the government has gradually relaxed its long-standing one-child policy and in 2016, it issued a policy allowing couples to have two children. But the policy hasn’t been as effective as the government expected as younger couples have been unwilling to have more children amid concerns about high costs and the lack of childcare facilities.

In order to boost the population and the supply of labor, the report urges further policy changes that should be included in the 14th Five-Year Plan period which will run from 2021 to 2025. These include scrapping all restrictions on the number of children couples can have and supporting the implementation of fertility service policies. The government should implement policies to encourage childbirth, including parenting support, in areas where the population is aging most rapidly.

Measures also need to be taken to improve the quality and productivity of the workforce, the report said. These include allowing the free flow of labor between urban and rural areas through the reform of the household registration and land systems, so as to achieve the optimal allocation of existing labor resources and improve labor productivity. Support must also be stepped up for the transfer of surplus rural labor to towns and cities, according to the report.

Zhou Xiaochuan, a former governor of the central bank, warned earlier this year that China’s aging population has become an increasingly pressing problem and put forward four proposals to improve the sustainability of the pension system, including raising the retirement age and incentivizing workers to increase their pension savings.

Guo Yingzhe contributed to this report.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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