August 22nd, 2014
Written by Gaoyuan Zhao, GEI Associate
It is reported that total government social safety-net and employment spending in China stood at 965.36 billion yuan ($156.77 billion U.S. dollars) during the seven months, accounting for a rise of 17% from a year ago.
The ratio of the increase of social security cost is extremely high for a government to maintain in a steady status. As for Europe, countries like UK and German kept their social security expenditure with an increase rate under 5% since 2009. As for USA, the Federal government spent on social security with a mean annual increase of around 5% since 2000 (see graph below).
The large increment of social security in China reflects the potential troubles of social welfare, which doesn't suit to the current economic condition in China. The GDP of China increased by averagely 8.5% and fiscal revenue of Chinese government increased around 10% annually since 2009. Neither of them could catch up the growth rate of 17% in social security cost. This rapid change would lead to higher tax rate in the future and then brings impediment on the economic development.
One possible reason for this rapid increase of social security is the improvement of old-age pension and medical insurance, both welfare rose by almost 100% in the past 5 years. On the other side, the aging population, accompanied by low birth rate and widening gender imbalance, causes more burden which the improvement brings on the Chinese social welfare -- more old people and better welfare, but less people working for production. The implementation of the two child policy in 2013 is one verification of this problem from the other side. As predicted by demographers, the social aging is to keep expanding in the next 20 years. Adjusting wealth distribution, optimizing resource allocation, there is still a long way to go for China to maintain the healthy development of economy.