China’s Pension System.pdfVIP

Positioning Paper China’s Pension System Professor Dr. Haico Ebbers Drs. Rudolf Hagendijk Harry Smorenberg We would like to thank: Renmin University Fudan University CEIBS University NSSF China Insurance Regulatory Commission Ministry of Commerce – Department of European Affairs China Life Pensions With special thanks to: Stuart Leckie (Sterling Finance Limited) Wensheng Peng (BarclaysCapital) 2 1. Introduction China is currently undergoing many transformative processes: from a communist system to a socialist market economy, from a rural to an urban society, from an industrial country to a service economy. Finally, and that is the topic of this positioning paper, one can witness a demographic transformation and consequently a social security transformation. China is now in the process of developing a social security system that corresponds to its transfor- mation into a socialist market economy. Central to this social security system is the pension scheme. The “iron rice bowl,” China’s traditional social security system, was very simple: employees of State Owned Enterprises (SOEs) and state related organizations enjoyed cradle-to-grave security for all basic social security services, from employment to health care to pensions. In this environment, the state owned enterprises were responsible for supporting their own pensioners. Due to economic, social and demographic changes, the traditional socialist way of organizing pen- sions became no longer possible and step by step reforms were implemented to shape a new, more modern pension system. The main economic factors relevant to the Chinese pension system are the transformation of SOEs that resulted in higher unemployment, the emergence of a dynamic private