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China greying — and learning to live with it

Pallavi Aiyar

A rapidly ageing population is giving rise to its own worrying challenges, which include providing for pensions and health care.

A quick evening walk around the Chinese capital’s public parks would reveal them to be teeming with activity. Everywhere groups of grey-haired retirees are visible, practising Tai Chi or ballroom dancing; catching some sun in companiable silence or taking their pets for a walk. But there are very few young children. Only 25 years ago China worried that it had too many children to support, leading the country to embark on an unprecedented demographic experiment that l imited most couples to a single child.

Today the country’s leadership is grappling with the consequences of this policy: a rapidly greying population that is giving rise to its own worrying demographic challenges. According to United Nations data, China is on course to age faster than any other country in history, with the median age estimated to shoot up from around 32 today to at least 44 in 2040.

“We not only have the world’s largest population but also the largest population of people over 60,” says Du Peng, Director of the Institute of Gerontology at the People’s University in Beijing. China currently has around 150 million people aged over 60, a number that is expected to double by 2020. By the middle of the century, the U.N. predicts that one third of the Chinese population or some 430 million people will be 60-plus.

“This means that China must prepare to meet many age-related fiscal, social and productivity challenges,” continues Dr. Du. Addressing the needs of such a large population of retirees will put serious strains on the country’s finances and health-care system, which many experts feel China is unprepared for. However, Beijing is also well aware that failure to meet these challenges could threaten the underpinnings of the Chinese economy and lead to wide-scale social unrest.

China’s elderly have traditionally been cared for by their extended family, in a manner akin to India. However, given the one-child policy the current generation of young people will be faced with what is locally referred to as the “4-2-1 phenomenon,” a reference to an only child having to look after four grandparents and two parents.

With the ratio of workers to retired people set to decline from about six to one currently, to two to one by 2040, it is clear that the traditional reliance on family for old-age security will be inadequate. Developing a reliable social security umbrella to redress this crisis in-the-making has thus emerged as a matter of priority for the country. The means to achieve this, however, remain contested.

The crux of the issue is that China’s population is ageing before it becomes rich. Thus unlike other countries with ageing populations such as Japan, China will need to take on the welfare burden of a developed country even as its per capita income lags significantly behind that of the rich world. Last year the China National Committee on Ageing issued a five-year plan for the period 2006-2010, outlining the government’s main strategies to deal with the country’s changing demographic landscape. The plan focussed on a two-pronged approach: pensions and health care.

The pensions system currently in place in China is a patchwork of pre-reform era cradle-to-grave obligations that state-owned enterprises (SOEs) made to their employees called “legacy pensions” and a more market-oriented pension system for urban workers adopted in 1997. The latter comprises various contributory schemes in which employers, employees, and the government contribute a certain amount of money towards each worker’s pension fund.

But while all is very well on paper, China’s old-age welfare net remains critically under-funded. According to the World Bank, the country’s total pension debt including the legacy pensions and its more recent obligations stands at a weighty $1.5 trillion.

Ma Fengli, a researcher with the China Research Centre on Aging, a Beijing-based think tank, says the authorities had recognised, more than a decade ago, the potential social catastrophe that could ensue from a faulty pension system. Ever since, government policy has been attempting to rationalise the system by improving its financing and extending its coverage.

Dr. Ma gives the example of the National Social Security Fund the central government set up in 2000. The Fund, which received monies from state-run lotteries and a percentage of proceeds from initial public offerings of SOEs listed overseas, was aimed at helping over-stretched provinces meet their legacy pension payments. However, this measure proved to be inadequate to meet the financing gap, so that it remains common for provincial governments to use pension contributions by the current generation of workers to pay for the legacy pensions of the previous generation.

“This ‘borrowing’ of payroll taxes is worrying,” admits Dr. Ma. Indeed a scenario in which millions of workers find out that their personal pension accounts contain only notional credits and no real assets is one that would deeply trouble any government and Beijing is no exception. Nonetheless, Dr. Ma claims that while “the situation is not perfect, it is already much better than before,” pointing to the fact that more than 80 per cent of workers in cities are covered by some form of pension.

The worry is more in the rural areas where almost no one is covered; by some estimates more than half a billion Chinese remain outside the pension net. “That is our next challenge; extending the coverage,” says Dr. Ma.

Pensions are not, however, the only concern in an ageing society.

The fact that chronic health care problems are more common in old age and the diminished ability of the elderly to pay for medical care put China’s crumbling health care system in the spotlight. The government’s share in national health spending has plunged from close to 100 per cent in the heyday of the communist revolution to about 15 per cent today. Less than 10 per cent of China’s rural population and only around half of its urban residents have medical insurance. According to China’s official 2003 national health survey, 64 per cent of people in cities who required hospital treatment said they chose not to go to hospital because of the cost. In the countryside this figure was 75 per cent.

Given its rapidly ageing population, the lacunae in the public health system are untenable if China is to avoid the kind of social instability that could threaten the ruling party’s legitimacy. Thus in the last two years renewed investment in health care has emerged as a policy priority, with the central government spending 13.8 billion yuan on health in 2006, a 65 per cent increase over the previous year.

The main focus of health sector reform is on extending a pilot rural cooperative medical care system launched in 2003 to the entire country by 2010. Under this system, each individual contributes a small sum annually to which additional payments by local, provincial, and central governments are added.

And while government assistance is intended to be the cornerstone of tackling the challenges of a greying population, Dr. Ma says China is also looking to private investment to take up some of the slack. Thus privately run old age homes, privately developed pension schemes, and so on are a final aspect of Beijing’s strategy to cope with its altering demography.

There are two more policy options that some experts have been advocating should be part of any long-term strategy to address the ageing issue. One would be to scrap the one-child policy, a move that the government has in recent times repeatedly ruled out as a possibility in the near future.

The second is to raise the retirement age, which is currently between 50 and 55 years for women and 60 years for men. Dr. Ma says his centre has recommended a gradual increase of this age limit in order to ease pressure from the pension system. However, if implemented such a move would mean fewer job vacancies for young people who already face intense competition for employment. Thus Beijing considers raising the retirement age to be too politically sensitive and the focus of strategy remains squarely on pensions and medical care.

The fact, however, is that even if China is able to achieve its goals regarding these two issues over the next decade or two, new age-related problems will begin to emerge by the middle of the century. By then the number of those over the age of 80 will likely have burgeoned. Concludes Dr. Ma: “We will soon have to start thinking not only about the old, but also the ‘oldest of the old.’”

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