Tackling the Chinese Pension System

China has made great strides in expanding pension coverage for its population over the last fifteen years. Before 1997, state-owned enterprises (SOEs) provided their workers with so-called legacy pensions without regular contributions. Since 1997, China has established a contributory pension system, which covered over 280 million urban workers in 2011. More recently, China has established a pension scheme for rural workers; by the end 2012, the rural pension scheme had grown to cover roughly 460 million individuals.

Organized into three parts, this policy memorandum describes the current state of the Chinese pension system, as well as its shortfalls, and then offers some suggestions to help address these issues. First, it will discuss the key challenges facing the Chinese pension system: the aging of the population, the fragmentation of the system, the lack of advance funding, and the low level of investment returns. Second, it will examine the causes of each of these challenges. Third, it will put forward several proposals to address each of these challenges. In each of these three main parts, the memorandum will focus primarily on the Urban Enterprise Pension System (UEPS) portion of the Chinese pension system.

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