Beyond its massive economic impact, the recent coronavirus outbreak has also raised important questions about the nature of China’s healthcare system. Elsewhere, we plan to review some of the basic facts about public health expenditures and the comparatively expensive, inefficient quality of healthcare in China. But it’s impossible to understand these issues without first understanding the character of the broader “social insurance system” (社会保障体制), of which healthcare is one part. This system is known for its long-standing financial deficits, its built-in geographical inequalities (which privilege wealthy coastal cities), and the vast divide between legal obligations on the part of employers and the de facto practice of widespread non-payment into the social insurance fund.
China technically has five types of social insurance, including the pension fund, medical insurance, unemployment, maternity pay, and work-related injury insurance. These are accompanied by a “housing fund” designed to encourage employees to save money to purchase a home. They are generally referred to together as the “Five Insurances and One Fund” (五险一金). The pension, medical and (usually) unemployment insurance technically require payments from both employer and employee, while the maternity and injury insurance are paid into by the employer alone. The housing fund is paid by both, but accrues entirely to the employee. All of this describes how these funds would work if employers were to follow the letter of the law. In reality, the application of these requirements is extremely uneven, both between different cities and among firms. This is one reason why unpaid social insurance benefits have become such a major focus of worker unrest in recent years.[i]
There is widespread recognition in China that the incapacity of this system threatens to produce social instabilities in the long term, but legitimate reforms have been piecemeal and insufficient. As was mentioned in our interview with Lao Xie, expansive promises to reform the system to the benefit of its working class recipients were made during the Hu Jintao regime. But, by the time Xi came into power, these were increasingly portrayed as “unreasonable” and the plans were rolled back. Meanwhile, a series of reforms were implemented in the other direction, further defunding or otherwise limiting social insurance access for workers. The most egregious of these efforts have focused on the pension system, explored in the article below. In recent years, for instance, the retirement age has begun to be pushed back, but only a little at a time—“like ‘boiling a frog in warm water’ (温水煮青蛙)”—and regular pension increases to keep up with inflation have been intentionally depressed.
The result is that the best illustration of the contradictions inherent in the system as a whole are presented by the pension system specifically, and we therefore use the article translated here as a general introduction to the broader systemic crisis. The piece below, by Jiang Xia (whose work we have translated previously), emphasizes the ways in which historical inheritance, economic pressure and demographic trends have combined to produce this wide-ranging crisis in the pension system. Though the emphasis here is on social insurance, the question also lies at the crux of larger demographic debates about whether or not China has passed the so-called “Lewis Turning Point,” after which old workers begin to outnumber young ones (i.e. the “demographic dividend” dissipates) and the social burden of caring for the elderly begins to hinder overall economic growth, while also placing specific familial-financial pressure on the young.
We agree with the author’s major points and analysis here, which are backed up by solid data and insightfully connects the crisis to a Marxist analytic framework. That said, the author, who is a university student within a major city, tends to draw some of the more limited language and conceptual tools common to the Chinese New Left. The piece was originally published on Tootopia (土逗公社), a now defunct clearinghouse for left-wing social theory and cultural criticism from mainland millennials. We find the often archaic and vaguely social democratic approach of both the older, academic New Left and the younger, digital Tootopia current to be an obstacle. As we’ve explained in previous prefaces, such approaches often carry with them strange presumptions about the state’s autonomy from the economy and its capacity to be a force for good—or even portraying problems as rooted in the failure of political leaders in China to be consistent with their stated socialist inheritance. Similarly, they invoke unpopular, incorrect and archaic socialist-era language in bizarre and counterproductive formulations (see the use of “workers and peasants” in the conclusion to the piece below). In some cases, we’ve simply translated these phrases into more accessible versions in English. But overall, the ways in which the Chinese Left—old and young, academic and activist—seems stuck in a ghost world of nostalgic Maoist vocabulary is itself an informative fact. And, in this case, none of these features distract or distort the central point of the piece, which remains salient.
Introduction by Tootopia Editors, February 21st 2019:
Chinese social insurance issues seem to have entered into two difficult situations: On the one hand, business owners complain that social insurance payments place a heavy burden on the enterprise. On the other, the portion of social insurance that covers pensions is not sufficient to make ends meet. In fact, both the private sector and the government have avoided responsibility for today’s pension deficit. Just as the private sector has refused to pay contributions to social insurance funds, the outstanding debt to older workers left behind by the reorganization of the state sector has only intensified today’s pension deficit crisis. At a certain point, pensions will be sacrificed for the sake of China’s rapid economic growth.
On the 19th of February , the National Development and Reform Commission released a report titled “Redoubling Efforts to Fix Shortcomings in Public Services within the Social Sphere, a Program of Action to Advance the Formation of a Strong Domestic Market” (below abbreviated as “the Program”). Regarding elder care, the Program recommends that related services be completely marketized. It calls for the development of private institutions to care for the elderly, allows for the cancellation of existing structures, supports investment into the elder care system on the part of both domestic and international capitalists, and other similar preferential policies. The Program further deepens reforms of the non-profit elder care sector’s system for registering institutions, allowing those institutions that are in accord with laws and regulations to establish multiple branches, allowing them to reach economies of scale, to better interlink, and to build their brands. It further encourages capital that had been used in manufacturing, business or natural resources to be converted into use for elder care services. Finally, it encourages public-private partnerships at the local level in order to further the development of the Program.
In other words, from that day forward, care for the elderly no longer relies on the government, but instead on the market, which is to say that it relies on money.
In the entire Program, we can’t even find any intent to further develop the social insurance system. With the social insurance fund in deficit for many years, it seems that they have finally found a way to dispose of it. In the past, state-owned enterprises threw workers out into society like they were nothing but dead weight, but at least they had social insurance. Nowadays, private enterprise won’t stop talking about social insurance, wanting to again throw it out like dead weight, but this time into the market. In reality, both the government and the private sector cannot avoid responsibility for the burden of the social insurance deficit, because the private sector has not been paying its social insurance contributions in full, and the state left behind a debt to elderly workers during the restructuring of state enterprises. Altogether, this intensified the current crisis of the social insurance system. To a certain degree, we can say that the pension system has been sacrificed for the sake of the Chinese economy’s rapid growth.
Henceforth, care for the elderly will be truly marketized. This makes those of us who will get old before we get rich more and more worried, not daring to think about what we will do when we age. So much so that we fear we might not even be able to live a single day into our old age! How did this embarrassing fact about our pension system take shape? The article below offers an analysis.
What are the Bosses Complaining About:
Do Pensions Encumber the Development of the Enterprise?
“You want the pony to run, but won’t provide for it in old age.”
At the end of 2018, there were two features of the Chinese economy that everyone was focused on: the first was the so-called trade war between the US and China. Since America is the nucleus of the global division of labor, the trade conflict made clear that this structure may be undergoing some sort of transformation. Under the existing global system, the conflict between each country’s interests is becoming more and more apparent. These are external pressures faced by the Chinese economy. The second feature was domestic businessowners complaining about the economic slowdown, and even “going on strike” due to high costs. The unwillingness of the bosses to invest caused domestic fixed investment to wither. This is an internal contradiction confronting the Chinese economy.
However, this “strike” is not like other strikes. It obtained an energetic response from the state: In November, a conference of private businessowners issued a statement titled “We are proud businessowners.” Soon after, a series of preferential policies were launched to help private companies buy up businesses. So what are the bosses complaining about? In reality, the costs and burdens borne by private businesses exclusively originate from two sources: On the one hand, in relation to the state, the most important costs are the raw materials supplied by state-owned enterprises, the financing received from state-owned banks, and the taxes that they are are subject to. On the other hand, in relation to the workers, the most important burdens are wage and social insurance payments. This article will discuss the burden placed on companies by social insurance payments. Through this analysis, we believe that it will, to a certain degree, be possible to reflect the character of China’s economic development in recent decades and the deep-seated contradictions accumulated in the course of this development.
A Superficial Contradiction
On the surface, China’s social insurance system seems to be a contradictory phenomenon: On the one hand, China’s rate of enterprise contribution to the social insurance fund (i.e. the portion of wages deducted as an insurance premium each month) is said to be one of the highest in the world. On the other hand, the social insurance funds for the nation as whole are at risk of falling short. In other words, although enormous quantities of money are being submitted, it’s still not enough to cover people’s social insurance needs.
But how high is the rate of enterprise contribution for social insurance in China, after all? To take the basic pension fund (which comprises the largest share of the social insurance fund) as an example: this alone accounts for 70% of the enterprise contributions out of all five types of insurance combined. And within the pension fund, pensions for urban workers compose the vast majority (about 90% of the total). As for insurance premiums, urban workers’ contribution to the pension fund is 28% of the total wage, with about 20% being the firm’s responsibility and 8% being deducted directly from the workers’ individual wage. Concerning questions about social insurance, the expert Zheng Bingwen explains:
Chinese pension payments have remained high. Out of the entire pension system, the pension premium sits above the 22.5% average in the European Union, and is also higher than the OECD-member average of 19.6%. It is even twice as much as the US average, and three times that of South Korea. In terms of the amount paid by the employer, the 20% contribution in China is twice that of France, and three times that of the US and Japan, while being four times that of Canada, Switzerland and South Korea. So the employers’ burden is far higher than in these countries.[iii]
It would stand to reason that the more people pay into pension funds, the more money would be available to withdraw. But from the perspective of China as a whole, beginning in 2015, urban workers’ basic pensions had actually reached unsustainable conditions (after deducting government subsidies at all levels). What does this mean? First, when it comes to the actual operation of our country’s pension system today, it follows a pay-on-the-spot model. In other words, the money that we pay into the system now is not actually used to take care of us in the future. Instead, it’s being used to support those who are already retired. Under this sort of model, then, even though we “pay in advance,” the lack of sufficient funds implies that our generation’s pensions are not enough to support today’s elderly population. It’s enough to drive you crazy. (As for why this is the case, we will discuss the issues of overaccumulation and historical debt below.)
Even more unfortunate, the deficit in the pension accounts for labor-exporting (usually underdeveloped) provinces such as Liaoning is even more severe. This is due to the fact that our social insurance fund is not a truly nationwide system. In many places, the scope of the system barely reaches the county level. Here is an example: say Old Zhang is a migrant from Hebei working in Beijing. His enterprise pays its share of his basic pension contributions into the Beijing accounting system. (Social insurance accounts are divided into overall plan accounts and individual ones, but the overall plan accounts make up the vast bulk of the total.) When he grows too old to work and wants to return home, this portion of his pension cannot return with him to Hebei, but instead must stay in Beijing. Under conditions in which the total national pensions already require a state subsidy to be maintained, this can only intensify the suffering of those who have left their home provinces to work. It’s equivalent to underdeveloped provinces not only donating their labor power to the developed ones, but also subsidizing these wealthier provinces’ pensions. As the following chart shows, among China’s 31 provincial-level units, seven of them are in the red for urban workers’ basic pension accounts, with the most severe being Liaoning and Heilongjiang.
Are Higher Social Insurance Payments a Serious Burden on Private Enterprise?
Many businessowners complain that an increase in the rate of enterprise contribution to social insurance funds would push up costs. In mid-2018, when the government proposed that contributions should be collected more rigorously by the central Tax Bureau, some bosses worried that if they paid all the social insurance contributions that they owed, their films would collapse. (Which is to say that they had never paid in full to begin with….) Does this mean that higher social insurance payments are a serious burden on enterprises? On the surface, it seems to be the case, but we can at the very least offer these two arguments in response:
First, the reason that the nominal cost of social insurance payments relative to wages is so high is that the bosses have set wages too low. The rate of enterprise contribution to social insurance is a relative value, determined by the social insurance payment divided by the wage. So to say that social insurance rates are too high could mean that the absolute cost of social insurance payments is too high, or it could simply mean that the absolute level of the wage is too low. The media rarely mentions the latter, but everyone knows that “Chinese workers have long been synonymous with “cheap labor-power.”
Second, the actual rate of China’s social insurance payments is not at all as high as the nominal figures would indicate, because the majority of enterprises don’t pay the full amount legally mandated. In the first place, we must take into account the fact that more than a third of migrant workers are not even covered by social insurance funds. According to the “Migrant Worker Monitor” report,[iv] in 2014 the proportion of workers participating in the pension fund was no higher than 16.7%, and, although more recent numbers have not been released, it is unlikely that this figure has increased. Migrant workers’ social welfare is hardly protected by the labor law, the labor contract law, or the social insurance law. To a large degree, it is still as Marx says: “As long as capital is weak, it still itself relies on the crutches of past modes of production, or of those which will pass with its rise.”[v]
On top of this, in social insurance payments made by enterprises on behalf of urban workers there exists widespread falsification, underreporting of wages and underpayment of social insurance contributions. The media often cites this figure: Of all Chinese enterprises, no more than 30% pay their social insurance contributions in full. So after it was announced that social insurance payments would need to be handed over directly to the Tax Bureau in a unified collection system beginning in 2019, the problem of high social insurance payments has become a constant topic of discussion because many bosses are worried that they would not be able to conceal anything from the Tax Bureau and they would have to pay in full or else. It is commonly believed that, in its campaign to collect personal income taxes, the Tax Bureau will need to more accurately determine the real wages paid to workers in an enterprise. Its powers will therefore increase, and this will severely diminish enterprises’ opportunities to evade paying their full share of social insurance. The implementation of full social insurance payments will then influence the competitiveness of weak medium and small enterprises, such that the slightest increase in social insurance payments could cause many enterprises to sink into a deficit.
It’s apparent that the allegedly high burden social insurance places on private enterprises is actually already passed on to workers for the most part, and that business owners’ grumblings about higher social insurance payments driving up costs is largely a false presumption. After all, you can’t complain about something that hasn’t actually occurred. This explains why the bulk of China’s medium-to-small-scale enterprises have for many years relied on a system of informal employment, because: under such a system the rights of the workers have no full protection under the law. The moral character of the formal regulations are quite high, with “ensuring that the rights of the workers are earnestly protected” as the bottom line. But for the business owners squeezing as much out of cheap laborers as they can, ignoring labor law and the requirements of labor contracts has simply become the norm. “Ensuring that the rights of the workers are earnestly protected” is for the most part still an unreachable horizon.
In this way, the replacement of informal systems by formal ones has become a normal phenomenon in China. Within the hierarchy of socioeconomic relations, informally employed migrant workers occupy the lowest stratum. They are the main producers of society’s wealth, but they also bear the bulk of the burden of rising costs. Their position is, however, different to that of the environment. The destruction of the environment in the course of economic development threatens the conditions of all social classes, and in reality it’s fairly easy for such issues to obtain attention in mainstream discourse: the issue of Beijing’s smog is one such example. But, by contrast, the fundamental rights of workers are often buried in the evasive language of the free market, and it is very difficult to arouse indignation about such issues across classes.
Is the Social Insurance Deficit Merely the Result of an Aging Population?
The media often blame the social insurance deficit, and in particular the pension deficit, on the aging of the population. This is clearly related to the pay-on-the-spot model used for pensions. Alongside an aging population, the burden placed on workers by retirees is increasing and the pressures on the equilibrium of the pension fund’s cash flow are growing greater and greater.
But did these pension fund problems, seen through the pay-on-the-spot model, just appear out of nowhere? The pay-on-the-spot framework is merely the method for operating the pension system, but the proximate cause—in this case the facilitating mechanism of the system—is not equivalent to the ultimate cause at the root. The aging of the population is simply the straw that broke the camel’s back. Seen from its origin, the pension given to a worker after retirement is just a portion of the value they produced while they were young, not a form of charity for the lower classes. It goes without saying that a society’s pensions are a necessary deduction from that society’s total surplus product, or we could say a portion of the value of labor-power. As repayment for labor, pensions ought to be paid in full, and if a society’s pension fund turns out to be too little, this is actually a sign that the money originally paid into the pension fund has been moved elsewhere. To put it bluntly: if a society’s rate of exploitation is too high, then its pension fund will also be exploited—but where has it gone? According to the logic of an economy maintaining continuous, rapid growth, the main use of surplus product is accumulation. In other words, the pension fund has been emptied by capitalists, the money converted into investment capital. The so-called pension fund deficit is clearly, in essence, the seizure of social insurance funds for investment. And this is a problem brought about by the over-accumulation of capital.
Following from this premise, the significance of the aging population becomes relatively clear. The burden of an aging population is the inverse of the “demographic dividend.” You can’t just force hundreds of millions of workers to contribute their low-cost labor-power and then not provide for them when they’re old. When those hundreds of millions of Chinese workers were still young and green they served as a massive reserve army of labor, and thereby pushed wages and social insurance expenditures down to a very low level. This generated surplus value on a huge scale, which was transferred to both domestic and international capitalists. This formed the foundation for rapid economic growth, while also being the source of the violent, widening gap between rich and poor—this is the reality of the so-called “demographic dividend.” But when these hundreds of thousands of working class people age, or if they get injured on the job or fall ill, the rapidly growing economy doesn’t have enough social insurance funds to take care of them. They’re merely a crop of chives to be harvested by neoliberalism: after being cut down in the spring of their youth, the remainders are simply left to rot back into the earth.
The Historical Debt of Social Insurance
Finally, we will address the other major cause of the current social insurance deficit: historical debts. Although China’s current social insurance system is on the surface supposed to be a combination of individual accounts and society-wide bookkeeping, in reality it’s still the pay-as-you-go system. Everyone’s accumulated capital in their individual account (as their own fund accumulated for their own retirement) is still funneled out to pay for the overall system, effectively emptying the account (even though the funds technically show up “in” the account, they are not really there). Why are these funds shifted out of the accounts in the first place, though? The answer actually traces back to the restructuring of state-owned enterprises that took place at the turn of the millennium. This wave of factory closures caused 20 million workers to be laid off. Under the old system, once these workers grew old their care was largely the burden of their enterprise. But as firms were already closing and others were downsizing or renegotiating their obligations, the new system saw local government take on the responsibility for social insurance funds. The problem, however, was that the local government social insurance funds did not at all correspond to the funds accumulated by the old workers who had been employed at state-owned enterprises. In order to guarantee that social insurance could be paid out at all, then, there was on choice but to use the portion of total funds sitting in new workers’ accounts, creating a deficit. In reality, the social insurance fees paid are mostly set by the scale of this historical debt. According to statistics gathered by Zheng Bingwen, in 2013 the deficit in pension accounts amounted to some 260 million yuan.[vi]
In line with the analysis above, however, this does not mean that young workers are funding the pensions of retired workers. The old workers’ pensions are what they themselves produced in their youth. In fact, those who were laid off from state-owned enterprises paid a huge price, and the pensions they receive in compensation are not nearly enough. The false appearance of old workers drawing funds from the young arises from the fact that, as state-owned enterprises were restructured, they also liquidated these old workers’ pensions—this only one portion of a much larger process of original accumulation, accruing cash for a handful of people.[vii] Calling this an “historical debt” is very accurate, then. But who exactly the “debtor” is in this situation is not entirely clear.
Why does the basic problem of the pension system described above reflect China’s rapid economic growth and its contradictions? Because the pension question directly involves all three elements of the triangular relationship essential to the Chinese economy: Labor, Capital and the State.
Firstly, the problem of the pension system covered above is one result of overaccumulation within the Chinese economy. In rational terms, accumulation should be for future consumption, with the increase in productive power today helping to create goods for consumption in the future. But in the terms of our actually existing society riven by class contradictions, it is not this simple. Instead, accumulation pushes aside consumption and assumes its place in order to solidify a system in which profit is pursued at the expense of an increase in living standards or services. Actually, in the era of the planned economy China also saw accumulation displace consumption, but this was because of an intentional strategy geared toward industrialization, with the goal of overcoming other industrial nations, and this strategy was rooted in the backwards conditions of the country itself. But under a socialist system, the reliance on rural surplus and workers’ consumption funds for accumulation ought to, at a certain point, be ultimately repaid. For example, society ought to use its formidable industrial capacity to produce low-cost agricultural machinery and everyday consumer goods.
But the reality of so-called repayment (反哺)[viii] is that it has a structural prerequisite: that the authority over society’s surplus be, for the most part, exercised through a communally managed economy—and it is essential that the masses of workers and peasants possess a certain control over this economy, to prevent their becoming alienated within it. By contrast, so long as the social surplus is mainly seized in the hands of private capital, it will always first and foremost be used to sate capital’s thirst for endless growth. It follows, then, that workers consumption must be sacrificed for the sake of profit and capital accumulation. According to the logic of capital, social insurance is, of course, not profitable. It is nothing more than a cost and burden. So we again return to the question of social insurance funds. We can conclude that, in order to both reduce private industry’s feeling of burden and more or less ensure a sustainable flow of funds for social insurance, the only method we can ultimately think of is to invest social insurance funds into state-owned enterprises. It can clearly be seen that so-called “repayment” still largely requires relying on the publicly-owned economy. But when all is said and done, to what degree to should you extend such an approach, in practice? This immediately becomes a question of the extent to which the economy takes on a communal character, and the degree to which control is given over to the workers and peasants.
In addition, via our analysis of the pension question we can also see that China’s rapid economic growth (over-accumulation) rests on a multitude of informal systems. Private industry’s large-scale and ubiquitous methods of accumulation, whereby worker’s rights are sacrificed for the sake of profit and they are left to wander on the edge of legality, also accumulates a symmetrical mass of contradictions as private industry levels more and more demands on the process of formalizing these informal systems. In recent years, we can clearly see an intensification of the conflict between labor and capital, and at the same time observe an escalation in the demands made in the ceaseless collective actions engaged in by workers (having moved from demanding their salaries or social insurance payments to demanding an increase in their wages and even the formation of labor unions).[ix] These efforts toward formalization will, to the same extent, smash existing benefit structures, and are therefore bound to be faced with enormous resistance. This contest will determine the direction of Chinese industry’s employment system and its level of workers’ rights in the future.
[i] For more detail on the legal requirements, see Adam Livermore, “Understanding China’s Pension System,” China Briefing, 14 September 2010. <https://www.china-briefing.com/news/chinas-social-security-system/>
[ii] As part of the latest round of the crackdown on leftist and labor activist groups since 2015, Tootopia was shut down and forced to delete its online archives in June 2019. This article was widely reposted and can now be accessed here, for example: http://www.wyzxwk.com/Article/shehui/2019/01/398397.html
[iv] This refers to the name of a series of reports released by the National Bureau of Statistics. The report used here by the author is not directly cited, but the 16.7% figure appears to originate in their 2014 report, available here: <http://www.stats.gov.cn/tjsj/zxfb/201504/t20150429_797821.html>
[v] This is from the Grundrisse, the text used is the Martin Nicolaus translation, and the quote is located in “Notebook VI – The Chapter on Capital,” available online here: <https://www.marxists.org/archive/marx/works/1857/grundrisse/ch12.htm>
[vii] The author is arguing here that the restructuring of socialist-era industry was an act of “original accumulation” in the Marxist sense, in which land, resources and/or labor are seized by a powerful minority, to be thrown into capitalist production. Original accumulation is also defined by the fact that it establishes and maintains the conditions for continuing capitalist accumulation. Often mis-translated as “primitive accumulation,” this is sometimes seen as the historical moment initiating capitalist production in an area. Though original accumulation does mark the entry of capitalism into a particular territory, it is incorrect to perceive it as a delimited “stage” that is then simply replaced by formal, less directly coercive mechanisms of exploitation and plunder. Instead, it is more accurate to think of original accumulation as changing form over time, but existing alongside more formal capitalist relations of production. It is both the continual maintenance of the baseline conditions for accumulation, and the mechanism whereby capitalism undergoes geographic expansion. We concur with the author here that the deindustrialization of the socialist era industrial belt was a key example of early original accumulation in China. For more detail, see part two of our economic history: “Red Dust,” Chuang, Issue 2, Bell & Bain, 2019.
[viii] Here and in several other places, the author is using terms common to the Chinese New Left, which combine a nostalgia for socialist era history (i.e., referring to “workers and peasants” in the subsequent sentence) with moral appeals that draw from socialist history and Chinese moral philosophy in equal parts. The term used in this instance, 反哺 (fanbu), commonly invoked by the New Left, derives from the 6th-century writings of Emperor Wu of Liang, describing a raven that provides food to its mother after becoming an adult. In the contemporary usage, the meaning is basically a generic one of fulfilling the duties of filial piety by taking care of your parents, or the elders of society at large.
[ix] The author takes a position common to many leftist activists and academics both within and outside China, claiming the existence of a “workers movement” that is in the process of moving to more aggressive demands, including demands for the formation of independent labor unions. As we have covered extensively elsewhere, this is a mis-portrayal of both the recent history of unrest in China (see: “No Way Forward, No Way Back: China in the Era of Riots,” Chuang, Issue 1, 2016) as well as the current trends exhibited by the best available records of mass incidents (see: “Picking Quarrels: Lu Yuyu, Li Tingyu and the Changing Cadence of Class Conflict in China,” Chuang, Issue 2, 2019).