A Study on China fs Social Safety Institution and Income Disparity

Almost twenty years ago, the Chinese government recognized the importance of changing the economic development model and industrial structure, and its achievement of extraordinarily rapid economic development during the past three decades has been described as a miracle generally sustained by officials f fixed-asset investments, the state-owned sector, and exports. China wants to shift the driving force from investment and exports to domestic private consumption, but private consumption is still too weak, despite the government fs numerous announcements to realize the shift. Domestic demand has not played the expected role of driving economic growth instead of fixed-asset investment and exports. Generally the weakness of the social safety net including pensions, health care, unemployment benefits, worker fs compensation, and maternity leave has been the main factor inhibiting private sector consumption because of concerns about the future. Traditionally, state-owned enterprises played the important role of supplying social security service under the socialist central planning era till the open door policy in 1978. Since then the government has liberalized economic control, and it is considered necessary to build a modern social security system like that in developed countries. In addition, consensus has developed that the state-owned sector cannot be expected to supply the social security service while strengthening the competitiveness in the market. The traditional model is not sustainable. From 1998 the government started to reform state-owned enterprises, with the goal of strengthening their efficiency. The government separated and removed the function of the social safety system from the state-owned enterprises to a new platform (Social security fund) that it established. There was a slogan about the state owned reform: gSeizing the large and letting go of the small h (Zhua Da Fang Xiao). Since that time the government has put in much effort to strengthen the social security function, but the capacity of the function is still very weak. One of the problems is that the system is very unfair; it is a system good for officials, but bad for workers and farmers. Basically it is not an integrated comprehensive pool. In particular, farmers are clearly discriminated against in the system. This leads to the conclusion that the weak social safety functions are the factors that led to reduced private consumption. The problem here is how to reform and build a functioning social security system to stabilize society and sustain economic development.