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Issues and Options for Social Security Reform in China

Li Shi1 School of Economics and Business Administration, Beijing Normal University

I. Introduction

The purpose of the paper is to summarize what is known (and not known) about reform and reconstruction of social security system and related social welfare programs in China today, the policy options being debated in both official and academic circles, and suggestions for new options for social system reform to be considered in the 12th Five-Years Program. In this paper, social security has a broader sense, referring to social insurance and social welfare (relief) programs such as free education and housing subsidies2. It is widely realized that China is approaching a development stage where social security plays more important role than before in terms of stimulating economic growth, equalizing income distribution, alleviating poverty and maintaining social stability. Moreover, it is also recognized the current system of social security needs to be reformed in order to meet the challenges resulting from transition of the system from one protecting the minority group of urban workers in formal sector to one protecting all the residents in the society (CDRF, 2009). However, there are a lot of debates concerning what kind of social security system can be applied to China given significantly large differences between urban and rural areas in terms of income level, employment structure, fiscal capability of local

1 The report is supported by Cairncross Economic Research Foundation (Beijing). The author is very grateful for constructive suggestions from Dr. Edwin Lim, Dr. Ian Porter and Prof. Zhao Renwei and comments from Prof. Nicolas Barr, Prof. Tony Atkinson and the participants in the project workshop of Beijing, 27 July 2009 and in the workshop of China Social Policy, Beijing, 9 November 2009. Research assistance from Ms. Yang Sui and Ms. Yang Xiuna is acknowledged. 2 It is important to note that social...