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The Chinese pension system - First results on assessing the reform options

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  • Heikki Oksanen
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    Abstract

    The aim of this paper is to analyse options for reforming the fragmented Chinese pension system that covers only 55 % of urban employees and a very small part of the rural population. After a brief history of pensions in China we present recent reform proposals and then discuss principles of pension reforms, with particular attention to reducing the pension contribution rates so that compliance could improve and coverage increase. As the Chinese population is ageing fast, we are presenting transition to a notional defined contribution (NDC) system as a model for adjusting the pension rules for increasing longevity. Transforming the accrued pension rights into NDC accounts and starting to apply the new NDC-inspired rules on indexation is not necessarily a jump into the unknown for the Chinese pensions system. Rather, it could be a useful and long-awaited clarification to the rules and a way to move towards a more uniform system nationwide. With the help of a simulation model based on Chinese data we produce scenarios for a range of pension reforms and assess their properties.

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    Bibliographic Info

    Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 412.

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    Length: 43 pages
    Date of creation: Jun 2010
    Date of revision:
    Handle: RePEc:euf:ecopap:0412

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    Keywords: Oksanen; China; population ageing; pension reforms; notional defined contribution scheme; NDC;

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    References

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    1. Feng, Jin & He, Lixin & Sato, Hiroshi, 2009. "Public pension and household saving: Evidence from China," BOFIT Discussion Papers 2/2009, Bank of Finland, Institute for Economies in Transition.
    2. Alessandro Cigno & Martin Werding, 2007. "Children and Pensions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033690, December.
    3. Felix Salditt & Peter Whiteford & Willem Adema, 2007. "Pension Reform in China: Progress and Prospects," OECD Social, Employment and Migration Working Papers 53, OECD Publishing.
    4. Salvador Valdés-Prieto, 2005. "Securitization of taxes implicit in PAYG pensions," Economic Policy, CEPR & CES & MSH, vol. 20(42), pages 215-265, 04.
    5. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
    6. Yu-Wei Hu & Gregorio Impavido & Xiaohong Li, 2009. "Governance and Fund Management in the Chinese Pension System," IMF Working Papers 09/246, International Monetary Fund.
    7. Richard Herd & Hu-Wei Hu & Vincent Koen, 2010. "Providing Greater Old-Age Security in China," OECD Economics Department Working Papers 750, OECD Publishing.
    8. Whitehouse, Edward, 2009. "Pensions at a glance: Asia/Pacific," MPRA Paper 36134, University Library of Munich, Germany.
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    Cited by:
    1. Mehlum, Halvor & Torsvik, Ragnar & Valente, Simone, 2013. "China's Savings Multiplier," Memorandum 17/2013, Oslo University, Department of Economics.

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