In China, a pension similar to Social Security in the United States pays about $410 a month for urban seniors, and only $25 a month for the countryside. Public health care covers less than half of people’s costs. Unemployment insurance provides about $220 a month; The average in the US is approx $1,700.
China’s consumer safety net is full of holes, even when we factor in the lower cost of living compared to the United States. With growth faltering in recent years, and now with the real estate crisis spiraling into the economy, China is seeing the consequences of its failure to create robust social assistance programmes.
Beijing policymakers, who have a longstanding aversion to household financial protection, have begun to cut social spending this year. This could further damage already faltering levels of consumer spending in the country, which in turn will lead to lower real estate prices. Real estate and consumer problems also exacerbate the risks posed by very high debt among businesses, households and local governments.
Leading economists have long urged Beijing, around the world and at home, to do more to shore up its consumer economy, and stop relying on speculative growth in the construction of apartment towers and massive public investment in infrastructure such as roads and highways. High-speed rail lines. The World Bank and China’s government planning agency made this point boldly in 2012 with a report titled “China 2030,” which called on China to better support consumers and embrace a “turning point in the path of development.”
Since then, China has doubled its investment to generate growth. The biggest industry over the past few years has been building new apartments – not consumer-oriented services such as travel or dining in restaurants.
The result is a glut of new apartments that could cripple the economy. China has accumulated enough empty apartments to meet demand for seven years.
A crumbling social safety net has contributed to a glut of apartments, as families continue to buy additional homes as investments they can sell in case of hard times.
The Covid pandemic has exaggerated the problem. Consumer confidence across China plummeted last year during Shanghai’s two-month “Covid-Zero” lockdown, when even many of the country’s wealthiest citizens had trouble getting food. Costly mass testing and quarantines have left local governments little money, contributing to new stinginess this year in social policies, as well as cuts to civil servants’ salaries.
China has expanded the number of people covered by unemployment insurance during the pandemic from less than half of the country’s urban population to many migrant workers who did not have such coverage before. But the expanded coverage expired at the end of last year and has not been renewed even as unemployment rates are soaring, especially among young people.
Many local governments also cut health benefits for residents this year after anti-COVID measures exhausted municipal health insurance funds in 2022. The cut in health coverage sparked street protests in cities such as Wuhan, Guangzhou and Dalian.
Faced with a rapidly aging society and the National Pension Fund which is expected to run out of money by 2035, the central government has also scaled back increases in payments to the elderly. The modest Social Security benefits were rising 10% annually through 2015. This year’s adjustment was only 3.8% and was delayed from the beginning of January to May.
And in 2020, China fulfilled Xi Jinping’s pledge, supreme leader, to eradicate extreme poverty in rural areas. But the government has yet to set detailed targets for its so-called rural revitalization plan, which officially began in 2021.
Soon after Mr. Xi took office in 2013, China began to economize on social benefits. Eligibility for the country’s welfare program, which pays just $70 a month in cities and half that amount in rural areas, has been restricted for six years. It now only covers elderly or severely disabled residents who can prove they are unable to find work.
Xi is an outspoken critic of public assistance programmes, warning in a speech to an elite Communist Party gathering two years ago that China “should not aim too high or exaggerate in terms of social security, and steer clear of the laziness trap of It feeds laziness.” luxury.”
China had previously made strides toward expanding its benefits as its economy grew rapidly. Welfare spending has increased tenfold since 2000. Two decades ago, few people had health insurance, and now almost everyone has health insurance. But while coverage tends to be very good for victims of car accidents and illnesses that mainly affect young, healthy workers, it covers little of the cost of serious illnesses that mainly affect older people, such as cancer.
“Social safety net problems are not new at all, and they cannot be blamed on China’s current economic problems,” said Mary Gallagher, director of the International Institute at the University of Michigan. “But the weak safety net explains why Chinese households are saving for the future and why it has been difficult for the government to promote household consumption as a new source of growth.”
China’s social assistance programs are not just frugal. It is also paid for by the workers who participate in it, and to some extent the employers, rather than being subsidized by general tax revenues, as is the case in the West, especially Europe. The monthly payments required to join state healthcare and retirement plans are often out of reach for low-income workers.
Guo Baoyang is a migrant worker who renovates apartments in Shanghai but now finds less and less demand for his services. He said he decided not to pay the $400 a month it would cost him to sign up for municipal medical and retirement plans. With the end of the pandemic, unemployment insurance is no longer available to him either.
Mr. Guo said his income has decreased because he works at most 20 days a month. He said that the municipal pension plan “is of no use to us at the moment, and we can only get some of it after retirement.” “Whether you can survive until then is a question.”
China’s economic growth began slowing before the pandemic, and has slowed further since then. This has brought social spending into increasing competition with the military budget, which is expanding at 7 percent annually. The Australian government’s April defense review concluded that China’s current military buildup “is now the largest and most ambitious of any country” since the end of World War II, as China seeks to assert itself as a global power.
Without strong subsidies for consumers, China relies on the fact that it provides widespread access to farmland for subsistence farming. And while nearly two-thirds of China’s citizens live in cities, many people have family members in the countryside. During the national lockdown in early 2020, many workers returned to their ancestral villages like Changming Chen in Guizhou Province and planted gardens to feed themselves.
Xian Huang, a Rutgers University professor who specializes in Chinese social policy, said aid is unlikely to expand much soon. “For middle-aged and young people, the idea of the government is that they can always find a job, or at least they should try to find a job, so they can rely on themselves,” she said.
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