Social Security Reform in China’s Transition to a Market Economy

This paper begins by describing the origins of a social security system that was based on a series of institutional splits that resulted in the development of a fragmented system characterized by inequity and incomplete coverage. The entitlements embedded in this system have proved difficult to revise in the light of changing circumstances and the pressures associated with economic transition, demographic change and the newly emerging problems of open unemployment and urban poverty. These developments, particularly the latter, are creating new demands on a system already struggling to adjust to structural problems of coverage and financial soundness. A series of extensive reforms in the areas of pensions and unemployment insurance and a rationalization of administrative arrangements and responsibilities have been introduced over the last two decades, but further reform seems inevitable as external pressures and policy priorities change. A key goal of the reform process has been to transfer responsibility for social security from enterprises to the state, but the system still suffers from a series of serious financial problems. Despite the extensive reforms that have already been introduced, these problems and the structural imbalances underlying them will require further action. The most important of these imbalances relate to the split between the nature and role of social security in the urban and rural sectors, the role of the commercial provision and its relationship with the state, and the extension of programmes aimed at poverty alleviation.