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How can China provide income security for its rapidly aging population?


  • Friedman, Barry*James, Estelle*Kane, Cheikh*Quei


The authors discuss key choices policy makers face about China's pension system in the face of a rapidly aging population. They describe the problems the current pay-as-you-go system faces in the near and long term and simulate policy options for solving those problems. They find that simple design changes are necessary but not sufficient conditions for making the pension system sustainable. Partial funding is necessary to avoid large increases in future contribution rates. They investigate the impact of the old-age system and economic growth of a multipillar system that includes a modest mandatory tax-financed- basic benefit plus a mandatory fully-funded defined- contribution scheme. Implementation of a partially funded multipillar pensions system must go hand in hand with reform of the financial sector and restructured investment procedures that emphasize the"right"mix of competition, diversification, and regulation. Otherwise, China's pension reform will ultimately fail.

Suggested Citation

  • Friedman, Barry*James, Estelle*Kane, Cheikh*Quei, 1996. "How can China provide income security for its rapidly aging population?," Policy Research Working Paper Series 1674, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1674

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    Cited by:

    1. Calvo, Esteban & Williamson, John B., 2006. "Old-Age Pension Reform and Modernization Pathways: Lessons for China from Latin America," MPRA Paper 4872, University Library of Munich, Germany, revised 2007.
    2. Giang, Thanh Long, 2004. "The Pension Scheme in Vietnam: Current Status and Challenges in an Aging Society," MPRA Paper 969, University Library of Munich, Germany.
    3. Chen, Vivian Y., 2004. "A Macro Analysis of China Pension Pooling System: Incentive Issues and Financial Problem," Discussion Paper 195, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    4. James, Estelle, 1998. "New Models for Old-Age Security: Experiments, Evidence, and Unanswered Questions," World Bank Research Observer, World Bank Group, vol. 13(2), pages 271-301, August.
    5. Min Qin & Yaer Zhuang & Hongyan Liu, 2015. "Old age insurance participation among rural-urban migrants in China," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 33(37), pages 1047-1066.


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