[Weekly Early Read] In-Depth: How Can the Pressure of Pension Fund Collection Be Balanced Against the Need to Reduce the Burden on Enterprises? (AI Translation)

【周刊提前读】深度：养老金征收压力与企业减负如何平衡？

The article provides an in-depth analysis of the current dynamics and challenges in China’s social security (social insurance) payment system, focusing on the simultaneous pressures for both increases and reductions in contribution bases and rates. It examines policy requirements, economic realities, regional disparities, and the looming sustainability concerns for China’s pension system[para. 1].

The upward pressure on social security contribution bases is primarily institutional: every year, local governments adjust the social insurance payment base according to the previous year’s average wage statistics. This generally results in an increased payment base, raising costs for both employers and employees[para. 1]. For example, from mid-2023 onwards, pension insurance bases across China have continued to rise, increasing labor costs and causing enterprises to anticipate further hikes in mid-2024[para. 1].

On the contrary, there is strong demand from enterprises, especially SMEs, to reduce their burden due to sluggish wage growth, high employment pressure, and insufficient demand. One measure increasingly under consideration is the reduction of medical insurance rates, as seen recently in Shanghai and other cities such as Guangzhou, Shenzhen, and Foshan, which temporarily lowered employer medical insurance rates by 0.5-1.5 percentage points[para. 3][para. 4]. For instance, from March 2024, Shanghai reduced the employer contribution rate for basic medical insurance from 10% to 9%[para. 3].

However, these reductions are often insufficient to offset the rising burden from increased pension insurance contribution bases, particularly for those paying at the minimum base. Many SMEs and low-income workers are directly impacted as minimum bases climb higher, sometimes surpassing actual salaries, especially in regions like Shanghai and Shenzhen, where policy-driven base increases have been particularly steep[para. 5][para. 6].

Statistical data corroborate that the wage growth which underpins these annual base adjustments has been slowing. In 2022, average wage growth was 6.7% in non-private sectors and just 3.7% in private sectors, both marking historic lows in growth since the 1980s and 2000s, respectively[para. 7].

As contribution burdens rise amid stagnant or falling real incomes (especially in sectors like finance and real estate), some individuals opt out or stop paying into the system. Participation intent, especially among gig and flexible workers, is falling, raising longer-term concerns about the system’s sustainability[para. 8][para. 9]. For example, over the past decade, more than ten provinces have seen deficits in their employee pension funds, and research studies estimate a national pension fund shortfall could emerge within ten years[para. 10][para. 11].

At the national policy level, reform has moved towards pooling (统筹) pension funds at the provincial and now national levels to improve risk resistance and fund sustainability. This has made the upward adjustment of contribution bases a non-negotiable mandate: all provinces must raise their bases to at least 60% of the previous year’s average wage[para. 12][para. 13]. This centralization, while stabilizing in the aggregate, presents acute difficulties in less developed regions, where local wage levels and enterprise capacities often lag behind the unified requirements, exacerbating non-compliance, evasion, and enterprise strain[para. 14][para. 15].

Central and local governments have implemented various fee reduction and support measures over recent years, including lowering contribution rates, temporary payment deferrals, and grants for SMEs. Despite these, the primary determinants of individual and enterprise burden remain the linkage between contribution bases and average wages, which many believe overstates the real income of typical workers because the average is disproportionately influenced by higher-paying non-private sector jobs[para. 16][para. 17][para. 18].

Experts increasingly call for reforms to the calculation methodology for average wages (possibly incorporating median wages) and additional policy flexibility for gig workers and low-income groups. Nevertheless, with the pension system heavily reliant on current contributions and with fiscal supplementation rising to cover deficits, authorities are unlikely to significantly lower the contribution base floor in the near term for fear of destabilizing the national pension pool[para. 19][para. 20][para. 21].

The article concludes by urging structural reforms, improved statistical transparency, further development of second and third pension pillars (enterprise and individual pensions), and phased retirement age increases, to ensure the sustainability and attractiveness of China’s social security system in supporting an aging society[para. 22][para. 23][para. 24][para. 25][para. 26].