China's Pension Reform – Opportunities for German Companies?

Just like many other countries before it, China is facing the situation that ongoing economic development and rising prosperity are leading to fewer children being born, while at the same time more and more people are retiring and are receiving pensions and retirement benefits for a longer time due to increased life expectancy. These rising costs of the pension system have to be shouldered by a shrinking number of contributors.

 

In China, the problems are exacerbated by the 40-year one-child policy. Neither the relaxation of the one-child policy nor the promotion of a second or third child led to an increase in the birth rate. In addition, the retirement age in China is very low and has not been adjusted for more than 50 years, despite social and economic changes. Currently, the retirement age is 55 for women and 60 for men. In physically demanding occupations, especially for workers in industry and agriculture, the retirement age is even lower, at 45 for women and 55 for men. In addition, more and more young people are pursuing higher education, which means that they enter the workforce rather later in life. This in turn leads to a shortening of the contribution period to pension systems. Current estimates show that the existing pension system can only be maintained in this form until around 2035. The amount paid into the system also varies from region to region or province to province, and there is no uniform system yet. In addition, the low level of pensions is deplored, which in turn leads to many pensioners having to be financially supported by their children.

  

To address this development, a reform of the pension system and an increase in the retirement age were already envisaged in the 14th Five-Year Plan (2021 – 2025). This reform is now to be implemented in stages. Older workers will gradually face an extension of their work time, while younger workers will face a greater extension of their work time. Despite the planned transitional periods, the announcement met with predominantly negative response from the general public. This also became clear in a pilot project in Jiangsu province, in which the affected groups of people were able to participate voluntarily. The main advertising benefit was a higher pension if they took advantage of the new regulations, but only a few people made use of this opportunity.

 

In addition to the general increase in the retirement age, the reform also provides for an equalization of the previously different retirement ages for men and women. The lower retirement age for physically demanding occupations or activities is also under discussion. In general, however, a flexible system with differences according to occupation and life situation is to be retained.

  

The implementation of the pension reform comes at a time of economic uncertainty for the country. In particular, youth unemployment is reaching an all-time high, prompting fears that raising the retirement age could lead to older workers remaining in their positions longer and thus further exacerbate the problem of youth unemployment. Strong economic growth and other measures are intended to counteract this. For example, restrictions on the IT sector, which is known as a job engine, have been partially relaxed yet again. In addition, state-owned companies and state institutions such as the military are being encouraged to create internships and increasingly hire university graduates who are particularly at risk of unemployment. Measures were already taken to cushion the economic consequences of the covid pandemic and lockdowns in China, and these are still valid today. For example, students can register on a government recruitment site via their WeChat account and are then recommended directly to jobs that suit them. Without the usual time-consuming application and interview process. In addition, universities are encouraged to help students find jobs through online job fairs and direct referrals to companies. To some extent, companies can also receive subsidies for the creation of new positions for young professionals.

   

Other measures include expanding childcare facilities, especially kindergartens, and relaxing the strict Hukou (household registration) system. This system has so far prevented migrant workers from taking their children to kindergarten or school at their place of work. Under the current system, children must then generally live with their grandparents in their hometown, the place of Hukou, in order to attend kindergarten and school. However, if the grandparents are unable to care for the (grand)children due to longer working hours, this would have significant adverse effects on the parents' work activities.