The Economist - UK (2022-04-30)

The Economist April 30th 2022 China 51

Pensions

Pillar talk

“A

stonishing”, “spectacular”, “un­

precedented”: Chinahaswonplau­

ditsfromtheWorldBankandotherexperts

fortherapidexpansionofitsbasicstate

pensionsoverthepastdozenyears.The

number enrolled in these schemes (in­

cludingoneforurbanemployees)crossed

1bnin2021.Butthespeedyconstructionof

thisfirst“pillar”ofChina’spensionsystem

has notbeenmatched elsewherein the

plannededifice.

Asecondpillarissupposedtoreston

firms, which can enrollemployeesin a

company pension. But fewer than 29m

people,lessthan10%oftheeligiblework­

force,hadsignedupforthese“enterprise

annuities”bytheendoflastyear.China’s

third pillar—personal pensions—is even

stumpier.AlthoughindividualsinChina

savea lot,buyinghomesandotherassets,

theyhavelittlereason(orinclination)to

setuppersonalpensions.Togivethema

nudge,China’sgovernmentlaunchedpilot

schemesinShanghai,Fujianandpartof

Suzhoubackin2018.Theseschemesof­

feredmodesttaxbreakstopeoplewilling

tolockuptheirmoneyinpensionproducts

offeredbyapprovedfinancialinstitutions.

But take­up was disappointing and the

thirdpillarhasmadelittleprogresssince.

Thedelayisa pity,becauseChinaisnot

gettinganyyounger.Bytheendofthisde­

cade,itwillhavemorepeopleaged 60 or

abovethanAmericawillhavepeople.Ma­

nyoftheseoldfolkfacea precariousretire­

ment,balancedonlyonthefirstpillar.And

timeisalsorunningoutforChina’syoun­

ger cohorts.Well­designed pension pro­

ductsworkbestwhenpeoplestartcontrib­

utingintheir20s,allowingthemtomake

high­risk, high­return investments they

shouldavoidlaterinlife.ButChina’spopu­

lation of 20­somethings peaked in the

1990sandhasshrunkbyalmost50minthe

pasttenyears.

TheurgencyisnotentirelylostonChi­

na’sleaders.OnApril21sttheStateCouncil,

China’scabinet,releasedasetofguide­

lines on private personal pensions, in­

structingministriestolaunchmorepilot

projects, then roll out schemes nation­

wide.“Thereisnotmuchmeatonit,”says

NicholasOmondiofZ­Ben,a financialcon­

sultancyinShanghai.Buttheannounce­

ment nonetheless sendsa “strongmes­

sage”toChina’srivalrousregulators“toget

theiracttogetherandgetthisdone”.

Ifpersonalpensionsdotakeoff,they

couldhavesalutaryeffectsonChina’sin­

vestmenthabitsandfinancialmarkets.At

themoment,city­dwellerskeeptwo­thirds

oftheirwealthinhousing,accordingtoa

surveyin 2019 bySouthwesternUniversity

ofFinanceandEconomics.Toomuchof

therestiseitherinbarrencashor“rolling

fromoneendofthestockmarkettoanoth­

er”,asMrOmondiputsit,“withoutmuch

ofa fundamentalanchor”.InChina“saving

isnota problem”,saysYothinJinjarakof

theAsianDevelopmentBank.“Butwhere

thesavingsgo,that’sthequestion.”

Well­runpensionfunds,witha longer­

termhorizon,couldcontributetoa better

allocationofcapitalinChina.That,inturn,

wouldmakefutureworkersmoreproduc­

tive—whichtheywillneedtobeiftheyare

totakecareofthemselves,theirchildren

andtheirelderlyparentscomfortably.

ButevenifChina’sauthoritiesspeedily

approvethesebetterfinancialmousetraps,

willcustomersbeata pathtothem?Thetax

breaksonofferarenotwildlytempting.

Peoplecandeductcontributionsofupto

12,000yuan($1,800)a yearfromtheirtax­

ableincome,accordingtotheguidelines.

Thatisabouta quarterofaveragedisposa­

bleincomeinurbanChina.Butitisonly

15%ina placelikeShanghai.Thatwillseem

meagretothecity’shigherearners.Andif

funds keep a tightlid on risk, as they

shouldinacontributor’slateryears, re­

turnsmaynotlookenticingtoChinesein­

vestors,saysJanetLiofMercer,a consul­

tancy,giventhatpeopledislikelockingup

theirmoneyfordecades.

Thus,beforeChinesehouseholdswill

investenthusiasticallyinthethirdpillar,

thegovernmentandindustrywillhaveto

investineducatingthem.Asanexampleof

whatisrequired,MsLicitestheanimated

videos prepared by the Insurance Asset

ManagementAssociationofChina.Inone,

a mansitsbehinda deskimaginingallof

his expenses—mortgage, children, car—

andotherburdens,suchaselderlycare.

Eventhinkingaboutitturnshishairgrey.

Themessageisclear:ifyoufailtoprepare

forit,ageingwillageyou.n

H ONGKONG

Chinawillrolloutprivate,personal

pensions.Abouttime

How to save it

China, pension assets, by scheme, 2020

Yuan trn

Source:MinistryofHumanResources

andSocialSecurity,CICCResearch

Thirdpillar

Individuals

Secondpillar

Companies

Firstpillar

State

0 2 4 6

Commercial

annuity insurance

Enterprise annuity

Basic resident pension

Urban employees

That Works”—the title of an official white
paper from December.
That  notion  is  being  challenged  in
Shanghai,  where  millions  of  frustrated
people  have  been  locked  down  for  weeks,
some lacking food or medicine, in an effort
to  suppress  a  covid­19  outbreak.  The  traf­
ficked women pose a different sort of test
for  the  system:  whether  it  is  able  to  pro­
duce  legal  and  legislative  reforms  in  the
face of a public outcry. Officials claim it is
passing. A deeper look suggests it is not.
The npcis at the heart of China’s demo­
cratic claims. The biggest parliament in the
world, with nearly 3,000 members, caps a
pyramid of lower congresses. They guaran­
tee  “the  people’s  status  as  masters  of  the
country”, says the white paper. Yet only the
bottom level is directly elected. npcmem­
bers are chosen, in effect, by the Commu­
nist  Party.  Their  suggestions,  such  as  in­
creasing sentences for trafficking, are rare­
ly  debated  and  often  ignored  by  the  gov­
ernment. The body’s full session ended in
March with no changes to trafficking laws.
The  party  dictates  the  direction  of  the
legislature.  Officials  may  get  angry  when
the  npc is  called  a  “rubber  stamp”,  but
members do tend to pass everything put in
front of them. One of the biggest shows of
opposition  was  in  2012,  when  only  92.4%
supported an amendment to the criminal­
procedure law. This year members took the
bold step of commending Xi Jinping, Chi­
na’s supreme leader, for “doing a great job
at  being  in  charge”.  When  one  took  to  so­
cial  media  to  call  for  more  flexibility  in
Shanghai’s  covid  response,  his  comments
were censored. 
The  npc’s  standing  committee,  which
met  in  April,  is  often  more  active.  For  ex­
ample,  when  dud  vaccines  were  injected
into  thousands  of  children  in  2018,  the
committee  pushed  through  reforms  in  a
matter of months—but only after Mr Xi got
involved. He has not commented publicly
on the trafficking cases. The committee re­
cently  suggested  some  additions  to  a  pre­
existing  law  protecting  women.  These
would  merely  require  local  authorities  to
“promptly  report”  suspected  trafficking
cases to the police. 
The  party  may  ultimately  decide  to
make  the  criminal  code  tougher.  It  gets  a
facelift  every  four  years  on  average,  says
Changhao  Wei  of  Yale  Law  School.  But  re­
formists once had high hopes that the npc
would  actually  make  China  more  demo­
cratic.  The  constitution,  after  all,  guaran­
tees free speech and an elected parliament.
A notable event occurred in 2003, when ac­
tivists  pushed  the  npcto  act  after  the  po­
lice  beat  a  migrant  worker  to  death.  The
regulations  under  which  the  victim  was
detained  were  ultimately  repealed—but
not by the parliament. The government did
it directly. Allowing the npctodoitwould
have set a dangerous precedent.n