The first and main pillar is the basic pension system established in the 1990s. The current approach is a three-pillar system. This shift began in July 1986, when the State Council issued four sets of regulations to reform the labor system and mandated that employees of state-owned enterprises contribute 3 percent of their wages to the pension system. For more than three decades, the government has been trying to shift from the old model of the planned economy, where pensions were paid and guaranteed entirely through state-run enterprises, to one that suits the new economy. A 2019 report by the Chinese Academy of Social Sciences (CASS) warned that as the worker-to-retiree ratio declines, the National Social Security Fund (NSSF), established in 2000 to finance China’s future pension obligations, would likely be depleted by 2035.Ĭhina’s overarching social security and pension system, the Old-Age Insurance System, covers pensions, illness coverage, work-related injury benefits, and maternity support. But even if Xi’s initiatives are successful, they will do little to address the financial burden posed by China’s underfunded social security and pension system.

This trend means the end of China’s comparative advantage in cheap and skilled labor and the rise of the daunting financial challenge of caring for its rapidly aging population.Ĭhinese President Xi Jinping is determined to achieve technological self-reliance, hoping that innovation will improve China’s labor productivity and offset any potential future labor shortage. By 2040, an estimated 402 million people, or 28 percent of China’s population, will be older than 60 years old-the current legal retirement age for most men in the country-more people than the expected 379 million in the United States that same year. Within two decades, China’s retirement-age population is projected to surpass the entire population of the United States.

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