China’s Social Reform and Re-building the Welfare System Lu Mai Secretary General China Development Research Foundation

China’s Economic Growth and Social Development Content China’s Economic Growth and Social Development Revamping China’s Social Security System Poverty Reduction Education Old-age Support Medical Care Housing Characteristics of the Chinese welfare system and Difficulties in Revamping it Characteristics Welfare policies towards rural migrant workers Reforming public finance Reforming government performance evaluation Conclusions

China’s Economic Growth and Social Development China’s economy has been growing rapidly since the start of reform and opening in 1978.

China’s Human Development Index increased significantly.

Income gap is widening; Employment uncertainty and insecurity; Social reform and the rebuilding of the welfare system: a matter of great urgency Income gap is widening; Employment uncertainty and insecurity; Underdeveloped social services;

Income gap is widening.

Human development gap between town and country is widening

Goal of social development: Common prosperity; Ensuring a comfortable life for every Chinese; (2002) Harmonious society; (2006) New phase in China’s reform and opening: social reform and revamping of the welfare system

China’s Economic Growth and Social Development Content China’s Economic Growth and Social Development Revamping China’s Social Security System Poverty Reduction Education Old-age Support Medical Care Housing Characteristics of the Chinese welfare system and Difficulties in Revamping it Characteristics Welfare policies towards rural migrant workers Reforming public finance Reforming government performance evaluation Conclusions

Revamping China’s Social Security System Traditional social security system in China Traditional system State provision Enterprise provision Rural collective provision SOEs reform Collapse of people’s commune Since the 1990s, the Chinese government has taken numerous steps to revamp the social security system in areas of poverty reduction, old-age support, education, medical care and housing.

1. Poverty Reduction Reform of the economic and social system has proven the most effective means of reducing poverty in China; Two-pronged approach: development and relief

1.1 Development policies Rural areas: three large-scale relief programmes since 1986; Increase government investment in and low-interest loans to impoverished rural areas; Enable farmers to improve production conditions and poor villages to improve infrastructure; Urban areas: Creating employment; Support for securing small loans and training and preferential taxation policies; Paying people to provide public and community services;

1.2 Relief policies System of subsidence allowances for the urban poor (1999); System of subsidence allowances for the rural poor (2004);

2. Education Improve nine-year compulsory education; Support higher education and secondary vocational education; Education expenditures accounted for 2.86 per cent of GDP in 2006. The goal is to increase this to 4 per cent of GDP.

3. Old-age support 3.1 Urban areas: “Three-Pillar Model”(1997) A mandatory publicly-managed pillar, a mandatory privately-managed pillar and a voluntary pillar issues：the shortfall in accounts held by people who worked under the old scheme but will paid under the new one (the “middle men”); the endowment insurance scheme still plagued by limited coverage; the management and investment of the funds;

3.2 old-age security in the countryside（1992） Funded entirely by the individuals; Contemporary reform：allocate more funds to subsidize rural endowment； Besides, the Chinese Government has also borne the cost of endowment insurance for two categories of rural population: Infirm or childless elderly people; rural parents over 60 years old who only have one child or two daughters.

4. Medical care 4.1 Market-oriented reform Significant expansion of medical resources and improvement in medical facilities； Problem：medical expenses grow faster than personal income; a large part of it is borne by patients.

4.2 Urban and rural medical care system The employed The unemployed Rural residents Basic medical insurance for urban workers Insurance covering major illnesses of urban residents New-type rural co-operative medical care Chinese citizens Urban residents Medical support and relief for the urban poor Medical support and relief for the rural poor Commercial medical insurance

5. Housing Housing reform (1998) the poorest families can rent subsidised apartments provided by the government or their employers; the lower-to-middle income households can buy inexpensive apartments whose cost is subsidised; the more prosperous can either buy or rent commercial apartments at market price; Problem:some local governments encouraged the development of commercial housing at the expense of affordable or low-rent housing;

China’s Economic Growth and Social Development Content China’s Economic Growth and Social Development Revamping China’s Social Security System Poverty Reduction Education Old-age Support Medical Care Housing Characteristics of the Chinese welfare system and Difficulties in Revamping it Characteristics Welfare policies towards rural migrant workers Reforming public finance Reforming government performance evaluation Conclusions

1. Characteristics Issues: A dual structure on the way to integration; Characteristics of the Chinese welfare system and Difficulties in Revamping it 1. Characteristics A dual structure on the way to integration; Wide coverage with low levels of provision; Rapidly increasing burden on the government; Market-based; Issues: Welfare policies towards rural migrant workers still almost blank; Public finance and government performance evaluation reform needed；

2. Welfare polices towards rural migrant workers Still left to fend for themselves; Urban residents Rural residents Migrant workers Old-age security Endowment insurance Land — Medical care Basic medical insurance Co-operative medical care Subsidised treatment of major illnesses Education Free Free; subsidies Labour protection Industrial injury insurance Housing Subsidies; low rent Self-built Poverty relief Urban living allowances Rural living allowances

Involves the value and policies pursued by the government as much as its financial capacity and governance skills; Budgetary allocations from both the central and provincial governments needed;

3. Reforming public finance 3.1 Improve the structure of public spending; 3.2 Establish sound public finance; 3.3 Improve the transparency of public finance.

Government revenue increased rapidly.

Government investment in development activities should be reduced and spending on administrative overhead strictly controlled.

Encourage greater public participation: Participatory Budget Reform in China

4. Reforming government performance evaluation Market failure vs. Government failure Experience of OECD countries be introduced to China.

China’s Economic Growth and Social Development Content China’s Economic Growth and Social Development Revamping China’s Social Security System Poverty Reduction Education Old-age Support Medical Care Housing Characteristics of the Chinese welfare system and Difficulties in Revamping it Characteristics Welfare policies towards rural migrant workers Reforming public finance Reforming government performance evaluation Conclusions

Conclusions Revamping the welfare system will help improve the living conditions of all people across China, but particularly those in the low-income bracket, thus leading to greater stability and harmony in society; The people will have more incentives to spend. And as urbanisation advances, the domestic market will further expand;

Labour productivity will grow, as will labour costs in China Labour productivity will grow, as will labour costs in China. This will put more pressure on the industries to modernise; The service sector, from health to education, insurance, banking to real estate, will register robust growth.

Cambridge China Development Trust Acknowledgements CDRF has received generous support in its work from the Government of UK and many British companies: DFID HSBC Vodafone BP Shell Rio Tinto Anglo American Tesco Cambridge China Development Trust

Thank you! lumai@cdrf.org.cn www.cdrf.org.cn