China

Overview

China's economic growth rates have remained at around 9 percent during the last decade, and have translated into a significant reduction of poverty.

Only around 3 percent of the population lives below the national poverty line today, although the absolute numbers are still high. Specifically, the rural population living under the poverty line of 200 Yuan decreased by 50 percent in the past 7 years.

The rapid expansion of the economy and the development of the industry and services sectors in China have led to an intense urbanization process and an increasingly ageing population (see graphs below). 

In the historical transitions to a market economy and an industrial and urban society, the social protection system that China inherited from the pre-transition era has become increasingly non-sustainable and ill suited to address the emerging social risks.

In the urban areas, the seemingly comprehensive social insurance programs and newly developed social assistant schemes still have very limited coverage.  The pension insurance program is financially not sustainable and has imposed a major burden on the labor market, as it cannot provide affordable and effective support in an equitable manner. The labor market faces significant unemployment pressure from restructuring and the unemployment insurance program cannot fully deliver unemployment support in difficult regions.  

The establishment of the urban minimum living allowance program represented a major innovation and an important transition from enterprise-based welfare programs. But the program is at this early stage and requires refining to ensure that all needy are protected and that work incentives are strengthened.

An increasing awareness of the need for an alternative approach to complement the traditional poverty alleviation interventions exists in rural areas. Various pilots and local initiatives are ongoing, but systematic evaluation and assessment are needed. Financing mechanisms need to be rationalized, and resource use can potentially be more consolidated and coordinated.

Finally, developing a more coherent urban and rural social protection strategy approach is necessary for the reduction of inequality, sustainable development, and the development of a more integrated labor market.

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  Ongoing Projects
  Closed Projects
  Projects under Preparation
  Analytical and Advisory Activities

Ongoing Projects

None

Closed Projects:

Labor Development Project - P034618

Approval Date: November 1995
Closing Date: 31 December 2005

Economic reforms initiated in 1978 were followed by rapid economic growth.

The next critical step in the development of a market economy is the deepening of state-owned enterprises (SOE) reform, an area where other reforms such as price, fiscal, financial, trade, investment, planning, legal, social and labor interact.

One of the obstacles to accelerating enterprise reform is the existence of large numbers of surplus workers in these enterprises. The absence of alternative social institutions for delivering services has forced the Government to restrict enterprises from laying off redundant labor.

To assist China's effort in SOE reform, the Bank has provided assistance through economic and sector work and financing of investments to support restructuring and labor mobility.

The proposed pilot project, aimed at the development of a labor market to promote labor mobility, complements the Bank's ongoing assistance to SOE reform. The proposed project was jointly prepared by the MOL and the five pilot municipalities including Deyang, Guangzhou, Shaoxing with Zhejiang Province, Weifang and Wuhan (one of the 18 selected municipalities for comprehensive reform) with assistance of the Bank.

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Pension Reform Project - P058308

Approval Date: 4 June 1999
Closing Date: 31 December 2005

The objective of the Pension Reform Project is to assist China reform its pension system, through sustainable funding strategies. The project further aims at improving the pension system in a pilot province and city, so as to obtain experience and develop templates for the establishment of a national unified pension system. To this end, the project will aim at developing a model to assess the financial viability of the Qingdao municipal and the Heilongjiang provincial pension systems in accordance with existing parameters.

The project components include (i) policy development and regulation drafting regarding pension reform issues; (ii) development of sustainable funding strategies for the municipal and provincial pilot pension systems; (iii) update and revision of information, and related administrative systems, both at the Ministry of Labor and Social Security and the municipal and provincial pilots' labor bureaus, through the installation of automated systems for greater capacity and processing efficiency; (iv) training to support the enhancement of personnel skills requirements, which will include areas such as pension management and reform policy, financial projections and pension asset management; and (v) assistance in project administration at the level of the ministry and pilot project units and supporting costs.

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Enterprise Housing and Social Security Reform Project - P060270

Approval Date: July 1994
Closing Date: December 2004

The project supported the implementation of a strategy to develop a market-based housing system and a robust social safety net, freeing enterprises of parallel responsibilities, and thus helping promote labor mobility, enterprise restructuring and management improvement.

Tested and developed in the four selected municipalities, the new models can be replicated in other cities in China. Features of the models and strategy include: autonomous for-profit companies specializing in housing delivery direct to consumers, taking over housing stock owned and operated by enterprises; commercially viable housing rents and sales prices; cash wage supplements that compensate for rent increases; and market-oriented long-term mortgage lending operations for owner-occupied and rental housing; policy and regulatory framework that allows sustainable operation of the housing management and finance institutions. It also includes comprehensive pools of retirement pension, health insurance, and employment services managed centrally by specialized municipal agencies; and enterprises freed of responsibility for directly providing and managing worker housing and social security benefits.

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Approval Date: 9 February 1999
Closing Date: 30 June 2002

Widespread unprecedented rainstorms occurred during June and July 1998 in the Yangtze's middle reach, causing severe flooding especially in the provinces of Hubei, Hunan and Jiangxi. Rivers and lakes were rapidly filled.

Torrential floods in the hilly regions, coupled with mudslides, caused devastating damages to villages along the rivers and killed many people. Flooding of lake and poldered areas was further aggravated by the upstream floodwater that arrived during August and early September. Consequently, vast areas behind the Yangtze River dikes were inundated for almost three months due to back flow of the Yangtze flood.

The primary objective of this project was to assist in the restoration of social and economic infrastructure (drinking water supply, schools, hospitals, rural roads and irrigation works) damaged by the devastating flood in Hubei, Hunan and Jiangxi provinces, thereby, rapidly restoring economic production and social services.

According to the evaluation conducted at the end of the project, the main objective of restoring essential facilities, services and economic production was achieved in a rapid and consistent manner.

Out of the total 521 sub-projects, 448 sub-projects (85 percent) were completed within the first two years and 160 sub-projects (31 percent), with good work quality, within the first year of implementation. The completed sub-projects restored the social services and economic production within the shortest possible time after the flood. The new facilities were made more flood-resilient and were designed to meet the near-term expansion needs (e.g. schools and water supply systems).

This operation was very well received and highly appreciated in the completion evaluation of the national and provincial governments.

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Hebei Earthquake Rehabilitation Project - P056491

Approval Date: 29 May 1998
Closing Date: 31 December 2000

On January 10, 1998 an earthquake of magnitude 6.2 on the Richter scale occurred on the Ba Shang plateau in Hebei Province. The quake caused extensive damage to a rural area of some 2,600 sq. Iam, with a population of some 470,000 people living in 37 townships and 2,400 villages. Forty-nine deaths and 11,439 injuries were recorded, and some 44,000 were left homeless. Furthermore a total of 136,000 rooms collapsed and an additional 264,000 rooms were damaged. This loss of adequate shelter during Hebei's severe winter weather took a heavy toll on the population.

The project helped restore economic, social, and physical assets destroyed by the earthquake and developed measures to reduce vulnerability to seismic damage. The project's contribution at the end of the reconstruction effort was evaluated to be substantial. It is estimated that the project contributed to 10 percent of the housing, 100 percent of the hospital and 100 percent of the school reconstruction. The poverty alleviation component of the project also brought benefits and supplemental income to the local population beyond original expectations.

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Projects under Preparation

Migrant Skills and Employment Project

Migration of rural labor has been a very dynamic element in China's transition to an industrial, urban, and market-based economy and has contributed significantly to growth and rural poverty reduction.

A more integrated urban and rural labor market is essential for efficient allocation of human resources. Policy measures and program interventions can be taken in the short to long term to support the transition of rural surplus labor to urban areas and to help to improve employment, income and working conditions.

Many innovative interventions have been or are being initiated by various levels of government and non-government organizations.  Systematic evaluation of the net and longer term impact of these policies and programs, however, is yet to be conducted.

The proposed project aims at supporting the transition of rural migrants to urban areas to increase their access to better employment opportunities, and improve their incomes and working conditions by enhancing educational attainment, improving access to quality training and employment services, and strengthening worker protection.

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Analytical and Advisory Activities (AAA)

China Rural Social Protection - P075374 (in progress)

Despite the remarkable achievement in poverty reduction, China faces rising urban-rural and intra-rural inequality. It has become increasingly difficult to assist the remaining poor. In addition to the traditional development oriented poverty alleviation programs, the Government is exploring different ways to assist the rural poor. Many pilots and local initiatives are ongoing.  Developing a comprehensive approach to rural social protection will be a policy priority in the coming years.

The Bank rural social protection AAA aims to assist the government in evaluating the experience and impact of the rural social assistance (di bao) pilots, analyzing policy designs, assessing the institutional framework, and estimating fiscal requirements if the programs are to be expanded at the national level.

The AAA will also expose counterparts to relevant international experience on social protection, and contribute to capacity building in relevant government agencies through joint research and small scale training activities.

Urban Safety Net Study - P082744 (in progress)

This study looks briefly at the development of one safety net program over the past decade, the minimum living allowance (hereafter di bao). It provides an interesting example of a program which has potential to be an important plank of a more coherent national safety net. The program has been developed and grown rapidly in coverage terms; it started in limited urban areas but has expanded first to all urban areas and more recently to rural areas; at least in policy terms – if not always in implementation – it has become increasingly standardized in urban areas, but also in an incipient manner across urban and rural areas. 

The study is more descriptive than analytical, in part due to the lack of household level data to date on di bao programs (especially in rural areas). The discussion therefore identifies emerging policy and research issues rather than being a detailed analysis of the incidence and impact of di bao programs. 

Labor Market Study - P081824 (in progress)

The theme of the study is the transition of China’s labor market.  It will assess the process of labor market modernization and draw conclusions on policy priorities. The report will identify China’s labor market transition, assess the impact of the economic restructuring, analyze China’s labor market policy and its policy directions, and recommend improvements on the path towards an efficient, integrated national labor market system.

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Pensions Liabilities and Reform Options for Old Age Insurance - P097206

China has been spending an increasing proportion of its resources to support its old age insurance system in recent years. Recognizing that the situation is untenable, the Ministry of Finance has been keen to examine more closely the financial status of the country’s old age insurance system and analyze its long term outlook.

This report is the culmination of a three-year-long collaboration between the Social Security Department of the Ministry of Finance and the World Bank.

The analytical work was done on projections that used the Bank’s Pension Reform Option Simulation Toolkit (PROST) and aims to (i) quantify the long term pension liabilities nationwide; (ii) highlight the systemic problems that will need to be addressed; and (iii) suggest reform options to find a solution that is adequate, affordable, sustainable and robust.

Liaoning Social Security Pilot Evaluation - P094465 (completed 2004; final version upcoming)

Social security reform has been an integral part of China’s overall economic reform in the last decade. About a decade after the major reforms were initiated, pension reform remains an unfinished agenda. There is lively debate among policy makers, practitioners, and the academic circle as to what should be the structure of China’s future pension program and what transition path should be followed. 

To accelerate the reform, the State Council launched a comprehensive urban social security reform pilot program in Liaoning Province in 2001. While the pilot phase ended at the end of 2003, the Liaoning experiment has implications for the future development of the national social security policies. 

The Bank report argues that with substantial support of the central government, Liaoning has fulfilled most of the requirements set out in the Pilot program. Funded individual accounts were established; adjustment to the pension benefit formula was introduced; pension administration was significantly strengthened; and labor market distortions were to some extent reduced.

The Liaoning pilot, however, did not address many of the flaws that existed in the overall pension system. Legacy costs – from economic restructuring and pension system transition – heavily burden the Liaoning system.  As a result, the system is not financially sustainable in the long run. Pension contributions remain very high and distortive; effective retirement age is low; a significant part of the labor force is still not covered nor contributing to the program; risk management remains inefficient due to low-pooling levels; the governance structure for pension fund investment is under-developed and the return on investment is low; legal basis for effective enforcement is not fully established. 

The report recognizes that many of these challenges can only be addressed over a longer time period, or be addressed at the national level. However, as a national pilot, Liaoning offered valuable experience and a great opportunity to further analyze and develop the national pension policies.

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