IDEAS home Printed from https://ideas.repec.org/a/eee/chieco/v30y2014icp143-154.html
   My bibliography  Save this article

Pension financing in China: Is there a looming crisis?

Author

Listed:
  • Wang, Lijian
  • Béland, Daniel
  • Zhang, Sifeng

Abstract

Contemporary pension systems face a major fiscal challenge. In China, whose population has been aging rapidly, such a challenge is of extreme importance. This article finds that, in China, the cumulative funding gap in pensions should be 2022.34billion Yuan until 2020, and 71731.94billion Yuan until 2050; however, based on the fiscal capacity of the Chinese state, the fiscal burden created by pensions is not expected to create a financial crisis between 2013 and 2020. Furthermore, a fiscal crisis can be avoided between 2021 and 2050 if fiscal revenue increases by at least 6.18% a year on average during that period. This absence of predictable financial crisis does not mean that there are no significant demographic and fiscal issues ahead. This means that China should promote pension reform to prepare for an increasingly heavy financial burden in the future. The article concludes with policy recommendations about how to improve the long-term fiscal situation of China's growing pension system.

Suggested Citation

  • Wang, Lijian & Béland, Daniel & Zhang, Sifeng, 2014. "Pension financing in China: Is there a looming crisis?," China Economic Review, Elsevier, vol. 30(C), pages 143-154.
  • Handle: RePEc:eee:chieco:v:30:y:2014:i:c:p:143-154
    DOI: 10.1016/j.chieco.2014.05.014
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1043951X14000625
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Barry Eichengreen & Donghyun Park & Kwanho Shin, 2012. "When Fast-Growing Economies Slow Down: International Evidence and Implications for China," Asian Economic Papers, MIT Press, vol. 11(1), pages 42-87, Winter/Sp.
    2. Oded Galor, 2012. "The demographic transition: causes and consequences," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 6(1), pages 1-28, January.
    3. Ronald McKinnon & Gunther Schnabl, 2012. "China and Its Dollar Exchange Rate: A Worldwide Stabilising Influence?," The World Economy, Wiley Blackwell, vol. 35(6), pages 667-693, June.
    4. Robalino, David A. & Bodor, András, 2009. "On the financial sustainability of earnings-related pension schemes with ‘pay-as-you-go’ financing and the role of government-indexed bonds," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(02), pages 153-187, April.
    5. Dewen Wang, 2006. "China's Urban and Rural Old Age Security System: Challenges and Options," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(1), pages 102-116.
    6. Wang, Lijian & Béland, Daniel & Zhang, Sifeng, 2014. "Pension fairness in China," China Economic Review, Elsevier, vol. 28(C), pages 25-36.
    7. Dennis Tao Yang, 2012. "Aggregate Savings and External Imbalances in China," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 125-146, Fall.
    8. V. Bouvatier & S. Rigot, 2013. "Pension funds' allocations to hedge funds: an empirical analysis of US and Canadian defined benefit plans," Applied Economics, Taylor & Francis Journals, vol. 45(26), pages 3701-3710, September.
    9. Disney, Richard, 2000. "Crises in Public Pension Programmes in OECD: What Are the Reform Options?," Economic Journal, Royal Economic Society, vol. 110(461), pages 1-23, February.
    10. James, Estelle, 2002. "How can China solve its old-age security problem? The interaction between pension, state enterprise and financial market reform," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(01), pages 53-75, March.
    11. Birendra K. Rai & Chiu Ki So & Aaron Nicholas, 2012. "A Primer On Mathematical Modelling In Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 594-615, September.
    12. Song, Shige, 2013. "Identifying the intergenerational effects of the 1959–1961 Chinese Great Leap Forward Famine on infant mortality," Economics & Human Biology, Elsevier, vol. 11(4), pages 474-487.
    13. Shige Song, 2013. "Prenatal malnutrition and subsequent foetal loss risk: Evidence from the 1959-1961 Chinese famine," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 29(26), pages 707-728, October.
    14. Perkins, Dwight H., 2012. "Rapid growth and changing economic structure: The expenditure side story and its implications for China," China Economic Review, Elsevier, vol. 23(3), pages 501-511.
    15. Hadhek Zouhaier & Mohamed Karim KEFI, 2012. "Institutions and Economic Growth," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(7), pages 795-812, November.
    16. UNEP & FAO & IMO & UNDP & IUCN & WorldFish Center & GRID-Arendal, 2012. "Green economy in a blue world: synthesis report," Working Papers, The WorldFish Center, number 39611, December.
    17. Mark C. Dorfman & Robert Holzmann & Philip O'Keefe & Dewen Wang & Yvonne Sin & Richard Hinz, 2013. "China's Pension System : A Vision," World Bank Publications, The World Bank, number 13102, June.
    18. anonymous, 2012. "New St. Louis Fed banking and economic research," Central Banker, Federal Reserve Bank of St. Louis, issue Winter.
    19. Mohamed Karim KEFI & Hadhek Zouhaier, 2012. "Inequality and Economic Growth," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(8), pages 1013-1025, December.
    20. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
    21. anonymous, 2012. "Snapshot: Mexico's economic expansion slows," Southwest Economy, Federal Reserve Bank of Dallas, issue Q4, pages 1-20.
    22. Felix Salditt & Peter Whiteford & Willem Adema, 2007. "Pension Reform in China: Progress and Prospects," OECD Social, Employment and Migration Working Papers 53, OECD Publishing.
    23. Hadhek Zouhaier & Kefi Mohamed Karim, 2012. "Democracy, Investment and Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 233-240.
    24. Kaglic & Rick & Sonya Ravindranath Waddell, 2012. "District digest: Economic trends across the region," Econ Focus, Federal Reserve Bank of Richmond, issue 1Q, pages 45-47;48-51.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anping Chen & Nicolaas Groenewold, 2017. "An increase in the retirement age in China: the regional economic effects," Applied Economics, Taylor & Francis Journals, vol. 49(7), pages 702-721, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:30:y:2014:i:c:p:143-154. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/chieco .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.