Chinese farmer Shuhei Guo, aged 80, gets a pension of just $9 per month. Although not enough money for food, it risks causing a hole in the state budget, writes Reuters. Guo, who has spent his entire working life on the land in southeast of China is one of the 150 million people covered by a retirement system for people in rural areas, a system that threatens China with a pension crisis.
“55 yuan ($9) per month is a small amount, but it’s better than nothing,” said Guo, from the village Ledu County in Qinghai Province. Fears of economists and monetary policy makers about China’s ability to reform the pension system are increasing with the implementation of a program three years ago aimed at retired rural residents. Pension budget deficit will reach $10,800 billion over the next 20 years, up from $2,600 billion in 2010.
Retirement costs are becoming higher due to several factors, including the aging population, labor shortages, increasing human longevity, and earlier retirement. China’s problems with pensions are so serious that they can not be ignored any longer. Chinese government should raise the retirement age and finance the pension funds with state assets.
The number of Chinese aged over 65 years is 123 million (equivalent to the population of Japan). The problem of rapid aging of the population is more pronounced in rural areas where there are only old and children, as adults migrate to cities in search of a better life. The World Bank estimates that of the total active population of China in 2030, rural elders will be 34.4%, while the elderly in urban areas will be 21.2%.
Many analysts believe that China’s labor force will decline starting in 2015, under the impact of low birth rate and aging population, a trend that will cause a wage increase in the industrial sector and will boost the global inflation in future years. In order to meet the demographic challenge, the Chinese authorities have drafted a pension scheme for 657 million people living in rural areas. To receive a monthly pension of at least $9, or a tenth of the average wage in rural areas in 2011, workers must contribute at least $15 annually for 15 years.
In the richer provinces in eastern China the situation is different. In urban areas, the contributions are higher and the average monthly pension is 27 times higher, at $242. State subsidies represent 61% of total pension fund for rural areas and the rest is coming from individual contributions. Constrained by a budget deficit and an increase in pension costs, China allocates 40% of budget revenues to the pension budget, according to the Organization for Economic Cooperation and Development.
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