Commentary: Securing China’s Future — The Blueprint for Social Security Reform

China's social security system has undergone substantial evolution, shaped by the country's economic growth, demographic shifts, and legislative reforms. It originated with the 1951 Labor Insurance Regulations, focusing initially on urban workers. In later decades, reforms such as the 1986 introduction of social pooling, the 1991 clarification of shared responsibilities among the state, enterprises, and individuals, and the establishment of a unified administrative body in 1998 marked significant milestones. The legislative phase began with the 2010 Social Insurance Law, further transforming the system. With major integrative moves—like the 2014 merger of rural and urban pensions and the 2018 central adjustment for enterprise employees’ pension funds—China has shifted toward national coordination. The official rollout of a third-pillar individual pension in 2022 has produced a layered structure combining basic, occupational, and individual pensions. By the end of 2023, China operated the world’s largest social security system with extensive coverage: 1.06 billion in basic pension, 1.33 billion in medical insurance, 240 million in unemployment insurance, 300 million in work-related injury, and 250 million in maternity coverage. Employer and employee contributions together fund the system, typically with employers paying around 28% and employees 10% for key insurances. [para. 2][para. 3]

Despite widespread coverage, sustainability and fairness are now the system’s main concerns. Demographically, China's rapidly aging population and persistent low birthrate risk reducing the ratio of contributors to beneficiaries, posing a major intergenerational burden. Fairness is also at issue, given persistent disparities in protection among insurance types and regional gaps in social security fund surpluses due to economic differences. Pressure is particularly acute within pension insurance: since 2013, expenditure growth has outstripped contribution revenue, with gaps filled by government subsidies which reached 1.75 trillion yuan ($239.7 billion), or 6.4% of total fiscal expenditure in 2023. Projections suggest the basic pension fund surplus could turn negative as early as 2028. Stark benefits gaps remain: urban employees averaged 45,000 yuan in annual pensions, compared to only 2,671 yuan for urban and rural residents. [para. 4][para. 5]

Medical insurance stability is heavily reliant on fiscal funding, with annual public budget subsidies increasing to 673.5 billion yuan in 2023 (2.5% of fiscal expenditure). Yet since 2016, expenditures have routinely exceeded contribution revenues, widening funding gaps and increasing demand for fiscal support, particularly for resident medical insurance which received 661 billion yuan in subsidies versus just 1.21 billion yuan for employee medical insurance. [para. 6]

To ensure system sustainability, delaying retirement is a priority. China’s current retirement age—60 for men and 55 for women—is lower than the OECD average (64.4 for men, 63.6 for women), and postponing it could boost the number of contributors, ease pension sustainability pressures, and potentially lower the necessary contribution rate from 20% to 16%. [para. 7]

Another key reform is enhancing fund asset returns by shifting to more diversified, market-oriented investments. Compared to the world’s top seven pension markets, which invest heavily in equities (45%) and bonds (33%), China’s pension assets remain predominantly in fixed-income products (89.5%). Increasing equity investment could better preserve and grow pension assets. Overseas examples show diversified portfolios and the promotion of individual accounts (such as U.S. 401(k)s) can create steady long-term demand for stocks and fortify pension fund growth, with professional management further stabilizing investment. [para. 8][para. 9]