Trial pension plan for China farmers
Updated
China is launching a universal pension plan for farmers with nation-wide trials starting this September. It's an enormous reform which aims to stem the resentment caused by the gap between higher urban incomes and poorer farm workers. The potential impact could be profound - but so are the challenges to getting this right.
Presenter: Matt Abud
Speaker: Dr Li Ping, attorney at the Rural Development Institute in Beijing; Yvonne Sim, head of investment consulting for China at Watson Wyatt
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ABUD: Around nine hundred million farmers are the targets of the new scheme. It's an urgent reform, the gap between urban and rural incomes has been growing with city residents on average earning more than three times as much as rural workers. On top of this urban workers already have their own pension schemes leaving farmers out in the cold.
Dr Li Ping is an attorney at the Rural Development Institute in Beijing, which focuses on rural economic reform. He says the government has to tackle this issue to safeguard social cohesion.
LI: Even though the farmers seem calm it has continued to increase over the past 30 years, however the level of the increase is far behind the urban dwellers. Such kinds of income disparity keeps on increasing will definitely cast a very serious threat to the social stability of China.
ABUD: It's not the first time a farmer's pension plan has been launched. Since the 1990s farmers have been able to put their own money into a pension fund, but the rural poverty levels made this unworkable and most just gave up. This time the money will come from three sources; the government, farmers themselves and collective institutions.
But even though the trial is being launched many fundamental questions remain. Perhaps the biggest among them is who will pay how much? The government so far hasn't presented a breakdown of how much they will pay and how much will come from farmers themselves. Another question is whether the scheme is sustainable. Farmers will get the pension after 60 years of age, the minimum cited is 55 yuan a month but this varies greatly between provinces.
Ms Yvonne Sim focuses on China at Watson Wyatt, which consults on a wide range of policy issues, including pension and health care reform.
SIM: For an economy like China right now it seems to be affordable but the key issue then is how will they have the sustainable fiscal power to sustain that when ageing really hits the rural area.
ABUD: Ms Sim says the pension plan will lead to fundamental changes in Chinese society.
SIM: China's farmers for thousands of years operate on the principle that you need to raise a son to protect your old age and you rely on the plot of land to give you protection. By introducing this type of system essentially the central government is changing the historical tradition of how rural farmers will be taken care of when they get old. So from the feeling of piety type of mentality they are gradually moving toward a socialised old age support.
ABUD: The pension plan is one of many reforms targeting rural China. Other reforms include a boost to medical coverage and steps towards land ownership reform. One possible consequence of all this could be a broad boost to the domestic economy. If farmers feel more secure about their health care and retirement they may spend more, leading to a sustained surge in domestic consumer demand. The challenges to getting all this right are huge. China's system of government is complex and local level administration doesn't always see eye to eye with central decisions. This can make policy implementation across the country difficult, but the rewards for getting it right could be enormous for China's future.
Li Ping says the government has to face several risks if it's going to solve these challenges.
LI: This is a huge task, this first thing is how they're going to manage this. I don't know that the local governments will be capable of handling this professionally. Secondly, the social security for farmers should be of course operating in a very transparent way, otherwise the farmers could be used for other purposes.
