2011.10-Working Paper-Delivering Social Protection in China Programs and Development
1. Introduction
Current income security policy in China includes two polarized systems: social insurance and social assistance. Social insurance consists of five categories of contributory social insurance programs in areas such as old-age pensions, unemployment, medical care, workers’injury and compensation, and maternity benefits. Social
assistance is composed of a series of government funded, means-test benefit programs, providing assistance to individuals and households falling into absolute poverty for the maintenance of a basic living, and supplementary assistance in medical care, education, housing, or other needs. While social insurance has been extended
substantially in recent years, covering people in both formal and informal sectors and the rural population, levels of benefits vary markedly among people under different schemes.
In the early decades of China’s economic reforms, the major efforts of the government were focused on liberating the state owned enterprises (SOEs) and invigorating the economy. Social policies were made with an explicit goal to serve economic reforms. The aim of the government was to establish an insurance-based social security system, which primarily emphasized on market efficiency and individual responsibility for social
protection. The government assumed only a residual role in providing social welfare. It stepped in only when all other resources were exhausted. It was not until the turn of the 21st century when poverty and growing disparity in wealth and income became a source of social instability that the government began to resume its role in social welfare. Social assistance, funded by the government, emerged and rapidly developed nationwide. Particularly at the turn of the century, China began to shift government emphasis from economic or GDP dominated growth to a more balanced economic and social development, as expressed in terms of “scientific development” and “building a harmonious society”. With this change, programs began to rapidly expand to the informal and rural sector.
The following sections start with a brief description of the overall social security system currently operating in China, followed by an account of the reform processes and the contexts that gave shape to the current system. Then a broad assessment of the main issues with regard to the programs is made. The paper concludes with a discussion on the general features of China’s social policies and their development.
2. Major programs currently operating in China
2.1 Social insurance
Current social insurance programs in China include five categories: old-age pensions, unemployment benefits, medical insurance, workers’ injury and compensation benefits, and maternity benefits. These are further divided into several sub-systems catering for different groups of population.
2.1.1 Old age pensions
The old-age pension system in China consists of five separate schemes catering respectively for employees in the cities, government organs and public institutions, rural population, and urban residents outside the formal workplace. In recent years, an increasing number of cities have been experimenting on old-age pension schemes for
rural-urban migrant workers, either attached to urban employee pension schemes or created as separate pools. For all pension plans, family members can inherit the full benefits from the individual accounts.
The urban employee pension system: This is currently the largest pension scheme in China, a defined contribution scheme and operating based on the partially funded approach – a PAYG (Pay as You Go) social pooling plus funded individual accounts. The contribution rates are 20 percent of the total wage for enterprises and 8 percent of the wage for individual workers. Benefits consist of two tiers: a basic pension and an individual account pension. A worker reaching retirement age (60 for men and 55 for women) after contributing for 15 years gets a monthly basic pension from the social pooling equivalent to 20 percent of the average local wage and a monthly
payment equivalent to the funds in the individual account divided by 139 (life expectancy at age 60). The amount of the basic pension also takes into account both average and individual wage prior to retirement and the number of years of individual contribution. A worker reaching retirement age can also get an additional monthly payment of 1% of
the mean of the average wage plus indexed individual wage for each year of contribution.
In terms of coverage, in 2010 urban employee pension schemes covered 257 million participants, including 194 million or 62 percent of workers and 63 million retirees; 840 counties implemented new rural pensions, covering 102.77 million participants and 28.63 million pensioners; and rural-urban migrant schemes covered 32.84 million migrant workers. In 2009, the pension system for government and public institutions covered 15.24 million employees and 4.6 million retirees from these workplaces (Ministry of Human Resources and Social Security 2010a; National Bureau of Statistics 2010b).
In terms of benefits, in 2009 the pension system for urban employees delivered a monthly average pension of 1,300 Yuan (2,900 Yuan for those who retired before 1949 and 1,200 Yuan for those after 1949) 1 , with a replacement rate averaging 50 percent. In 2008, average monthly pension benefits for retirees from government organs were 1,822 Yuan and 1,663 Yuan for retirees from public institutions (China labour and social security
yearbook, 2009). Benefits of the pension schemes for urban residents and rural people both were set as a monthly minimum of 55 Yuan from the basic pension plus a monthly sum equal to 1/139 (based on life expectance at age 60) of the total funds accumulated in the individual account after contributing for 15 years. Local governments are allowed to determine the exact rates of benefits.
The pension system for government organs and public institutions: This pension system originated in State Council 1951 Regulations on Labor Insurance and has remained the same as it was created, covering employees in government organs and public institutions. Being a government funded and non-contributory program, it does not
require employees to make individual contribution during the years of employment. Upon retirement, s/he is paid with different levels of benefits based on his/her wage prior to retirement and the number of years of employment. Usually, a retiree from a government organ can get 90 percent of the basic wage if he/she has worked for 30 years.
Pensions for the rural population: Adopted nationwide in 2009, it is termed as the New Rural Pension System (NRPS) in contrast to the old rural pension system piloted in the 1990s. NRPS operates also based on the partially funded approach – a pay-as-you-go benefit funded by government plus fully funded individual accounts. Participation is voluntary. Eligible participants include all rural residents aged 16 or above other than current students, who are not covered by urban employee pension schemes. Five levels of individual contribution were set in 2009, ranging from an annual amount of 100 to 500 yuan, and participants are allowed to select any level for contribution. Both central and local governments provide subsidies for the schemes. The central government bears full funding for the basic tier for counties in the middle and western regions and 50 percent for those in the east region. Local governments are required to subsidize at least 30 yuan for each participant in 2009.
Benefits include two tiers – a basic pension and individual account pension. The basic pension is funded with subsidies from the central government and matching funds by local governments, while individual contribution and subsidies by local governments for each participant both go into the individual account. A participant reaching 60 years after contributing 15 years can get a monthly minimum of 55 yuan from the basic pension plus a monthly sum equal to 1/139 (based on life expectance at age 60) of the total funds accumulated in the individual account. For
currently old people aged 60 years and above, payment from the basic pension is a universal benefit which is not related to individual contribution. Local governments are allowed to determine the structure and levels of both
individual contributions and benefits according to the local context. Between 2009 and 2010, the number of counties implementing NRPS increased from 320 to 840, with participants also increasing from 87 million to 102.77 million and pensioners from 15.56 million to 28.63 million (Ministry of Human Resources and Social Security 2009,2010).
Pensions for urban residents: Beginning as local trials in a number of cities in 2009 and promoted nationally in 2010, this system operates in a similar way to NRPS, except that individual contribution rates were divided into 10 levels ranging from an annual amount of 100 to 1,000 yuan for participants to select. Both central and local governments provide subsidies for the schemes. The central government bears full funding for the basic tier for counties in the middle and western regions and 50 percent for those in the east region, and local governments are
required to subsidize at least 30 yuan for each participant in 2011.
Benefits also include two tiers – a basic pension and individual account pension. The basic pension is funded with subsidies from the central government and matching funds by local governments, while individual contribution and subsidies by local governments for each participant both go into the individual account. A participant reaching 60 years after contributing 15 years can get a monthly minimum of 55 yuan from the basic pension plus a monthly sum equal to 1/139 (based on life expectance at age 60) of the total funds accumulated in the individual account. For currently old people aged 60 years and above, benefit from the basic pension is a universal benefit and does not require individual contribution. Local governments are allowed to determine the structure and levels of both individual contributions and benefits according to the local context.
Pensions for rural-urban migrant workers: This kind of the pension system caters specifically to rural-urban migrant workers. Local trials such as those in Guangdong, Shenzhen, Beijing and Shanghai where rural migrant workers have been concentrated, started mostly around the turn of the 1990s following the passing of Labor Law in 1994 and State Council 1999 Temporary Regulations on the Collection of Social Insurance Premiums. While the labor law stipulated that all workers including contract and self-employed ones participate in local pension schemes where they work, the Regulations provided specific methods for the inclusion of migrant workers in the enterprise pension system. In the subsequent years, various policy guidelines and methods were provided by the central government to channel the efforts of local schemes, which varied considerably across cities
In 2009, the Ministry of Human Resources and Social Security issued Methods of Rural Migrant Workers Participating in the Pension System, which served as basic blueprints for the implementation of the system. Funding is shared between individual participants and enterprises. Enterprises contribute 12% of the wage, and individuals contribute 4%-8% of the wage. Similar to enterprise pensions, pension benefits consist of a basic pension and an individual account pension. If a worker has contributed for 15 years or above, s/he is able to receive a monthly payment of both basic pension and individual account pension. In case the worker has contributed for less than 15
years, two methods will apply: If s/he is enrolled in NRPS, his/her account is to be transferred to NRPS; if not, s/he will be paid with the money accumulated in the individual account in a lump sum. Similarly, local governments are allowed to determine the structure and levels of both individual contributions and benefits according to the local context. By 2010, the schemes covered a total number of 32.84 million migrant workers (Ministry of Human Resources and Social Security 2010a).
2.1.2 Unemployment insurance
Current unemployment insurance system is governed by State Council 1999 Regulations on Unemployment Insurance. Local governments also have their own regulations, which contained specific methods for policy implementation based on the local contexts.
All types of employees in formal work organizations, except for those in government organs, are required to set up unemployment insurance schemes, with enterprises contributing 2 percent of the total wages and employees 1
percent of the wage. A one-year fully covered service is the qualifying criteria for the unemployed to be eligible for benefits. The maximum period for an unemployed worker to live on unemployment benefits is 24 months if s/he
has over 10 years of covered services, 18 months if s/he has contributed for 5 to less than 10 years, and 12 months if his/her services was covered for 1 to less than 5 years. An unemployed worker gets 60-75 percent of the standard wage during the first 12 months of unemployment and 50 percent for the remaining 12 months. The exact benefits are to be determined by local governments according to individual situation, provided that it is below the minimum wage and above the social assistance threshold. Apart from cash benefits, during the benefit period an unemployed is also covered for medical care expenses, funeral expenses and survivors compensation, subsidies for using services of employment training, job introduction, and other expenses related with unemployment.
In 2010, a total number of 9.08 million workers were registered in labor departments as unemployed, figuring an unemployment rate of 4.1%. Unemployment insurance schemes covered 133.76 million employees (including 19.9 million migrant workers), with 2.09 million unemployed workers receiving benefits (Ministry of Human Resources and Social Security 2010a).
2.1.3 Medical care insurance
In parallel with the old-age pension system, there are four medical insurance schemes currently operating in China, catering respectively for government organs and public institutions, urban employees, urban residents, and rural people. Among them, the first two schemes were created as part of the benefit package under State Council
1951 Regulations on Labour Insurance. Similar to the divide in the pension systems, the one for government and public institutions was financed out of government revenues, while the one for employees and retirees from enterprises was financed by individual enterprises. Both systems covered inpatient and outpatient care free of
charge for individuals. Medical care reform since the mid-1990s has been focused mainly on turning the work-unit financed schemes for enterprises into the current medical insurance system for urban employees, while the one for government organs and public institutions has undergone only some modest adjustments in benefit rates. The latter two systems – the one for urban residents and the other for the rural population – have been created very recently.
The medical care system for government and public institutions: This system has remained basically the same as it was created in the early 1950s, which is often referred to as the public or free medical care system. Financed out of government revenues, the system covers both inpatient and outpatient care, with reimbursement
rates ranging from 80-90% of the costs for employees and retirees from public institutions, and 100% for those from government organs. Since the mid-1990s, the medical care system for public institutions has undergone some modest reforms to contain costs such as reducing reimbursement rates and turning some of them to participate in the medical insurance pools.
The medical care insurance system for urban employees: Reforms of the medical care system for enterprises was first piloted in a number of cities in the mid 1990s and extended nationwide by 1999. The basic approach is similar to the enterprise old age pension schemes - social pooling plus individual accounts, with enterprises contributing 6% of the total wages and employees 2% of the individual wage. A floor of 10% of the
local average wage was set, above which an individual is eligible for reimbursement for different percentages of the costs from the social pooling up to a ceiling of 400% of the average wage. Medical costs below the floor can be either
covered by the individual accounts or paid by the individual out of pockets. Participants are encouraged to participate in commercial medical insurance schemes to cover the costs above the ceiling. Local governments are allowed to
determine the exact rates for the floor, ceiling and the percentages eligible for reimbursement based on the principle of balancing revenues with expenditures (Ministry of Human Resources and Social Security 2006). Since 2006, rural-urban migrant workers were also brought into the coverage. By 2010, the scheme covered 237.35 million urban workers and retirees and 45.83 million rural-urban migrant workers (Ministry of Human Resources and Social Security 2010a).
The medical care insurance system for urban residents: This kind of the medical care system was first piloted in some major cities in the mid- 2000s and extended nationwide in 2007 following State Council Guidelines on Experiment of the Medical Insurance System for Urban Residents (Ministry of Human Resources and Social Security 2007). Eligible participants include all urban residents including children, students attending schools below the college level, and other residents who are not engaged in income-earning activities. Participation is voluntary and householdbased. Funding is shared by government and individual households. Contribution rates were determined by local government, which is required to provide subsidies for each participant for a minimum of 40 Yuan in 2007, and the central government would provide 20 Yuan of subsidies for each participant in the middle and western
regions. Additional subsidies in different amounts are also provided by central and local governments for households in poverty to share household contributions, such as children from families living on social assistance, children with disabilities, social assistance recipients, and elderly people from low-income families. Benefits
covered mainly major illnesses receiving inpatient or outpatient medical services. Floors, ceilings, and reimbursement rates are to be set by local governments.
In 2010, the Ministry of Human Resources and Social Security issued Circular on Doing a Good Job in Medical Insurance System for Urban Residents (Ministry of Human Resources and Social Security 2010b), which proposed to cover over 80-90% of urban residents by the end of 2010. The document also expanded eligibilities for coverage to college students, informal workers, and migrant workers, and raised subsidies by local governments for each participant to a minimum of 120 Yuan, and that of the central government for participants in the middle and western region to 60 Yuan per person. Benefits were also raised by raising the ceiling to 600% of the disposable income of urban residents, and reimbursement rates to 60% of the medical costs for inpatient care. Local governments are also encouraged to set up social pooling to cover outpatient care. By 2010, the scheme covered 195.28 million urban
residents (Ministry of Human Resources and Social Security 2010a).
The New Cooperative Medical System (NCMS): This is the medical insurance scheme designed for the rural population. Local trials started in early 1990s but stopped in the mid-1990s due to financial constraints in most of the economically less developed regions. Nationwide adoption resumed in 2002 following State Council Decision to Strengthen Rural Health Work, which decided to subsidize local governments in middle and western regions by providing 10 Yuan for each participant in 2003. Individuals contribute 10-30 yuan annually, while governments were required to provide matching funds. By 2010, per capita average funds increased to 157 Yuan, of which around 20 percent was from individual contribution and 80 percent from government funding (Ministry of Health, 2010).
Currently, NCMS primarily provides coverage for expenses related to inpatient services. Benefits are paid ranging from 30 to 50 percent of the total medical costs and varying with the types of service provider. By 2010, there were 2,678 counties implementing the program, covering 836 million rural residents or 96% of the rural population (National Bureau of Statistics, 2011).
2.2 Social assistance
Social assistance programs in China include mainly the Minimum Living Guarantee System (dibao), Medical Financial Assistance (MFA), Educational Assistance (EA), and Housing Assistance (HA). All of these programs are
government funded, means-tested, and available to both urban and rural residents with varying rates of benefits.
The Minimum Living Guarantee System (dibao): Jointly financed by central and local governments,the program provides cash assistance for households with per capita incomes falling below the poverty line or assistance threshold), which is locally determined mostly through the budget standards method with adjustments to the local
contexts and often availability of funds. An eligible household receives the difference between the total benefits eligible (the assistance line times the number of persons within the household) and the total household incomes.
The urban scheme was initiated in Shanghai in 1993, followed in 1996 by voluntary trials in a number of wealthier cities, and was extended nationwide in 1999 following the passing of Regulations on Guarantee of a Minimum Living Standard for Urban Residents by State Council. Since 1999, the central government began to subsidize provinces and cities in the middle and western regions for establishing the schemes. In the following years, the amount of central transfers increased from 400 million yuan in 1999 to 27 billion Yuan in 2008, covering over 60% of the total expenditure. Benefit rates vary considerably across localities. In 2009, the national average
assistance threshold was 228 Yuan per month, with local lines ranging from an average of 210 Yuan in the western region to that of 310 Yuan in the eastern region. By 2009, it covered 23.48 million urban residents in 11.42 million households, accounting for about 6% of non-agricultural population and providing an average cash allowance of 165 yuan per person per month (Ministry of Civil Affairs 2010).
The rural scheme was piloted in the mid-1990s in a few economically developed provinces, stopped in early 2000s dut to economic constraints, and resumed in 2007 following State Council Circular on Establishing Rural Dibao Nationwide. Between 2007 and 2009, central transfers for rural dibao increased from 3 billion Yuan to 21.6 billion yuan, reaching about 60% of the total expenditure, mostly going into provinces in the middle and western regions. Benefit rates also varied markedly across localities. In 2009, the national average assistance threshold was 1,210 yuan annually, with local lines ranging from monthly 60-80 Yuan in the western region to 200-280 Yuan in some provinces and cities in the east region. In 2010, the program covered 52 million rural residents in 25 million households, accounting for 5.5% of the agricultural population and providing an average cash allowance of 64 yuan per person per month (Ministry of Civil Affairs 2010).
The five-guarantee program (wubao): A product of the collectivization period, it provides income support and services to rural old people and orphans without family caregivers and sources of income.
Benefits include five categories: food and fuel; clothing, bedding articles, and pocket money; housing with the basic necessities; medical care; a person to be arranged to provide nursing care for those elderly people unable to perform daily activities; and an adequate funeral service.
Recipients can be cared for either separately in villages or collectively in the homes for the aged, depending on the physical condition of the elderly or the availability of beds in the homes. In 2010, there were 31,286 homes in the countryside, with 2.09 million beds and 1.73 million elderly residents.
Levels of benefits were left to the discretion of local governments, which in 2010 averaged 2100 Yuan for old people cared separately and around 3000 Yuan for those cared in the homes for the aged. In terms of coverage, the program covered 5.563 million elderly people in 5.341 million households, of which 1.774 million were cared for
collectively in the homes for the aged and 3.789 million separately in villages.
Medical Financial Assistance (MFA): Local experiments started in the early 2000s, and nationwide adoption of the rural schemes in 2003 and urban ones in 2005, with the goal of protecting the poor households against poverty
due to major illnesses. Financing is shared by central and local governments. Funding from the central government has been used to subsidize provinces in the middle and west regions, and local governments are required to share funding.
MFA benefits are paid out in two ways. One is to provide a premium for poor households, e.g. the current social assistance recipients, in the countryside to participate in NCMS and those in the cities to participate in medical care insurance schemes for employees or residents, whichever is applicable. Another is direct cash assistance after
the reimbursement by the insurance schemes. Direct cash assistance is paid on a reimbursement basis, with varying percentages of the total medical costs between the floor and the ceiling, depending on the types of service providers. In 2010, reimbursement rates ranged between 30- 50% of the costs, after payment from the insurance schemes. Non-dibao recipients but lowincome households, often referred to as the marginal poor households, are eligible for direct cash assistance at a reduced rate.
For rural MFA, in 2009 a total amount of 6.5 billion Yuan was expended by government at different levels, of which 1.5 billion was used for supporting poor households to participate in NCMS, and 5 billion for direct assistance. 40 million recipients were supported to participate in NCMS, at an average rate of 26 Yuan per person per year, and
73 million person/times received direct assistance, averaging 680 Yuan per person.
For urban MFA, in 2009 total expenditure amounted to 4.1 billion Yuan, of which 580 million was used for supporting the poor to participate in medical insurances, and 3.14 billion for direct assistance. Over 10 million people were enrolled in medical insurance programs with the support of MFA, averaging 54 Yuan per person per year, and over 410 million received direct assistance, averaging 765 Yuan per person.
Educational Assistance (EA): Introduced first around the turn of 2000s in line with implementation of dibao and nationwide adoption since 2007, it provides financial subsidies to dibao recipients, rural and urban, with children receiving various levels of school education. In the countryside, EA consists of two schemes: Two Waivers and One Subsidy, and Assistance to College Students from Poor Households. The latter includes mainly loans, scholarships,
temporary assistance, and tuition and fee reductions.
Two Waivers and One Subsidy provides free tuition and textbooks and subsidies for boarding school costs for students from dibao familiesduring their primary and secondary school years. In nationally designated poor counties (NDPCs), the central government bears full funding for free textbooks, free tuition and subsidies for boarding school costs; in non-NDPC counties, central government bears only funding for free textbooks, while local government is responsible for funding free tuition and boarding school subsidies; in economically developed provinces and cities,
funding is exclusively born by local governments. Housing Assistance (HA): Also introduced around the turn of 2000s in line with implementation of dibao, it provides financial subsidies to dibao recipient households with housing difficulties.
3. The processes of China’s social security reforms
Different from many of other nations, China’s reforms or rebuilding of the social security system started from reforms of its economic system, SOEs in the cities and collective economy in the countryside.
3.1 Social security during the planned economy period
China’s current social insurance programs are the results of reforms of the labor insurance package of the centrally planned economy period. In 1951, State Council issued Regulations on Labour Insurance, which created a nation-wide labor insurance program in China for all types of workunits including SOEs, government organs, public
institutions and social organizations all over China. Under the Regulation, labour insurance benefits covered pensions, medical care, workers injury and compensation, maternity benefits, and a number of temporary relief schemes. In 1955, a separate system was created for employees in government organs and public institutions. In 1958, the two systems were combined into a single one, and in 1978 it was divided again into two systems, one for employees in enterprises and another for those in government and public institutions.
Both systems were urban-based, pay-as-you-go, and defined benefits, covering mostly the public sector 2 . One main difference between the two schemes was that the one for government organs and public institutions was financed with central avenues and administered by individual work-units, while the other was both financed and
administered by individual enterprises, often referred to as the work-unit based welfare system. While pensions and medical care for enterprises have undergone major reforms, the one for government organs and public institutions has continued into the present almost intact. This divide has continued into the present in what is termed as the “two-track system” in pensions and medical care in China.
For the rural population, during the collectivization period (1956-1979), community-based welfare provision was an integral part of the rural economic system. In fact, the rural collective economy functioned as a welfare mechanism, covering most of the basic needs of the commune members in a similar way to that of the work-units
in the cities, and the number of people who might fall out of the collective protection was negligible. In addition, the rural collectives were equipped with a variety of collectively-funded and - administered welfare facilities. Among them, two most important programs were the “Five Guarantees” program (wubao) and the Medical Co-operatives. In addition, there were also a number of categorical social relief schemes for people such as victims of natural disaster, people with disabilities, families of martyrs and servicemen, and veterans.
The dismantling of the collective economy following rural economic reforms that started in the early 1980s lead to an abrupt collapse of the collective welfare programs in most parts of the rural areas, particularly in the economically constrained regions. In many places even the support for the most destitute was not guaranteed (Chow, 1988; Tian & Hu, 1991). This is mainly because the collective capacity for mutual help in the countryside was generally weakened due to the removal of the collective funding and organizational mechanism. Another reason was
that these services tended to be neglected by local governments who were preoccupied with the economy (Leung 1990).
The “Five Guarantees” program was established in the early 1950s as a collective social relief program catering mainly for the rural elderly without family caregivers and sources of income. Between 1956 and 1979, a number of regulations were issued by the central government, which defined the targets of the program as to include
people “who are old, weak, single and disabled, unable to provide for themselves through labor and cannot avail the support of family members.” Rural collectives were required to provide them with a minimal level of food, clothing, shelter, medicine and funeral expenses, which is how this program got its name of “Five Guarantees”, and take care of them either separately in their villages with both cash and in-kind benefits or collectively in the homes for the Aged (MoCA, 1982).
Soon after the removal of the commune system, collective provision for this group became a problem. In some poor villages, for instance, the “Five Guarantees” targets were treated the same way as other villagers by allocating them a piece of farm plots, which they were obviously unable to manage on their own; in other places these elderly people were provided for by the villages to levy an old-age “tax” on each of the component households, and the “Five Guarantees” recipients were required to collect, door to door, the “tax” by themselves (MoCA, 1982).
The rural Medical Co-operatives also underwent a similar dismantling process. Beginning in the early 1950s, the PRC government started to build a rural health care system based on the county, communes, and village collectives (e.g., production brigades and teams). The CMS schemes provided rural people with cheap and easy access to medical care, with the brigades taking on the responsibility for funding, administering and delivering the services. Funding came mainly from collective income and partly from individual farmers who were required to
contribute a small sum of registration fee in order to receive the service. The health workers were then called “barefoot doctors”. They were selected by the brigades from among the villagers and were then given a short practical training in either the county or township hospitals. Then they would usually work as both field laborers and ‘doctors’ and were paid with work-points as were the rest of the villagers (Gu et al., 1991). The schemes subsequently became a world-wide well-known innovation in tackling healthcare needs of rural population. By the mid-1970s when the rural Collectivization Movement reached its peak, the majority of China's rural population was covered under such schemes.
The rural medical cooperative schemes were also severely affected by reform in the rural economic system. The abolition of the communes and their subsidiary organizations (e.g. brigade and production team) not only led to difficulty in funding but also removed the organizational basis for collective health care (Hillier & Xiang, 1994). As a result, shortly after rural economic reforms, most of these schemes and facilities were abolished, and in most places barefoot doctors were replaced by private practitioners. By 1986 only 5.4 percent of the villages had CMS schemes (Ministry of Health, 1987). One investigation showed that in 1985 only 9.4% of the rural population was covered by such schemes (Hu, 1994), and most peasants were paying fees for treatment in 1986 (Shao, 1988). For most rural people, free and cheap health care had become a thing of the distant past.
3.2 The reform ideologies
In the early decades following economic reforms that started in the early 1980s, China’s social policy was guided by a strong belief in the primacy of economic growth that would ultimately benefit all citizens and lead them out of poverty. Throughout the 1980s and 1990s, reform in the social security system was characterized by the government retreating from its welfare responsibilities or liberating SOEs from social welfare responsibilities they had assumed during the centrally planned economy period. Criticism against the planned economy system was then focused mainly on its ideologically driven policies in the fields of both the economy and welfare such as the practice of tight control of the government over economic activities particularly in the agricultural sector and the method of egalitarian distribution. These factors were widely viewed as having contributed to the stagnation and
unbalanced development of the national economy and the generally low working morale in SOEs as well as in the collective economic organizations in the countryside (Wei & Wei, 1994; Davin, 1994) that had ultimately necessitated the need for economic reforms. This view became some of the major reform ideologies that subsequently shaped
China’s reform policies in both the economic and welfare spheres. Individual responsibility and market incentives were emphasized as the major means not only for stimulating economic growth but also for providing social protection.
In the economic sphere, the restructuring of SOEs in the mid-1990s attempted to reduce the sphere of state control while to increase that of individual responsibilities. In terms of social welfare provision, both researchers and policy makers manifested a strong belief in the efficiency of the market in meeting the needs of individuals and families. For instances, social insurance was widely regarded by policy makers and scholars in China as the most adequate form of social security for China. It was seen as matching the spirit of individual responsibility generally thought compatible with a market economy. “Socialisation of social welfare” was the catchword to lead the privatization process of social services. Old-age homes, hospitals, and schools and universities, which used to be free of charge for citizens prior to the reforms, were increasingly to rely on user fees for funding.
These generally anti-egalitarian and pro-market ideologies were also fanned by the belief in the trickle-down effects of the market economy, which was translated into economic and social policies with a strong emphasis on efficiency over equality, as stated in the slogan of “allowing some people to become rich first”. Consequently, social problems such as poverty and inequality were perceived as a “necessary evil” for a developing or
transitional economy, and economic growth was believed to be the ultimate solution to these problems and thus became the sole purpose of the government.
The withdrawal of government from social welfare responsibilities was further reinforced by the world-wide trend in the 1980s that in many welfare states in the western countries were retreating from or limiting their responsibility for providing welfare benefits to their citizens. The influence of this trend on China’s social welfare policy during the reform period has been substantial. One prominent theme that ran through the literature (Ministry of Civil Affairs, 1987, 1990) on social welfare reform in China in the early decades was that the provision of welfare by the state would create two problems: The first is that it would make welfare a burden on state revenues and consequently not only hamper the development of the economy, but would make the state become unaffordable for social programs in the long run. Another disadvantage of reliance upon government transfers for meeting the needs of individuals is that, as is one main theme of the New Right ideologies, the undertaking of welfare responsibilities by the government tends to erode the welfare function of the family, and may lead to the abandoning of responsibilities by individuals. In brief, that welfare may lead to dependency, disincentives to work, financial burdens for the government, and finally economic slowdown in the long run, almost became a consensus among both
policy-makers and researchers in the early decades of China’s reforms.
Finally, the reform ideologies also derived their rationale in the cultural tradition of China where the family used to serve as the major welfare provider for its dependants (Leung & Nann, 1995; White, 1998; Lin, 2002). During the planned economy period, the welfare function of the family was extensively shared by the government through full employment and the omnipotent workunits that took care of the needs of their employees and their family members “from cradle to grave”. To accommodate the rapid dismantling of the previous work-unit based social security
system, the removal of guaranteed jobs and free and heavily subsidized social services including health and education, emphasis was placed on family responsibilities that could be legally enforced. This is reflected in the various legislative acts that have been passed since the end of the 1970s, which assigned the duty of care for both
the aged and children almost exclusively to the family 3 . Thus, many welfare responsibilities previously held by work-units were shifted back to the family. While the primary responsibility of the government is to take care of the most destitute through residual and means-tested programs, families are forced to become the primary providers of social protection for their members.
This overall ideological climate in the early decades of reforms provided the basic rationales for the government to approach social welfare. In brief, social welfare policy was perceived primarily as a shock absorber for the changes brought about by reforms in the economic sphere, and was developed as a stabilizing apparatus of the
government which expected that economic growth would automatically resolve all social problems and lead to prosperity for all. This general orientation toward social welfare has been a major factor in shaping the development of China’s social welfare policies in the reform period.
3.3 Reforms of the urban pension system
In line with the above ideologies, reforms in the social security system began with establishing social insurance programs to relieve pension burdens of SOEs and facilitate their restructuring, which was a crucial part of China’s reforms. This set off a crisis management process in the subsequent decades. Torn between an
increasingly open and market economy and a socialist political structure, the legitimacy of the new regime depends crucially on its ability to meet the double challenges of invigorating the economy while ensuring that the interests enjoyed by those sections of the population or sectors who had played a major role in the planned economy era are properly assigned or guaranteed.
As such, reform of the pension system in China has been focused on the one for employees in enterprises, which started with in the early 1980s when rapid increases in the number of retirees relative to that of employees in SOEs had resulted in huge pension burdens in the state sector, leading to a “pension crisis” for most SOEs. Between 1978 and 1985 the number of retirees increased fivefold, and pension costs rose from 2.8 percent of total wages, for urban employees to 10.6 percent (World Bank, 1997). As such, early pension reforms were implemented in the form of local experiments, which were intended to relieve SOEs of pension burdens through social pooling across enterprises. By the mid-1980s a variety of locally administered pension schemes were set up. The schemes were mostly based on counties or districts, differing widely in both design and administration. Because pooling was limited mainly within the state sector, its effects in reducing pension burdens of SOEs were limited. In addition, wide diversity in pension benefits and contribution rates as well as in pension burdens across enterprises often led to disincentives for well-off enterprises to pay contributions to the pools while the poor ones were unable to pay contributions (Chow & Xu, 2001).
Nation-wide reform of the pension system for enterprises started in the early 1990s and completed by the mid-2000s. Between 1991 and 2005, the central government issued a series of documents, which gradually brought the system into the current shape. Specifically, State Council Document 33 of 1991, Resolutions on Reform of the Pension System for Enterprises, called for the establishment of a provincially unified social pooling system covering all types of enterprises and workers. Different from the previous pooling across enterprises, Document 33 required workers to make individual contributions to the pools. This was followed by State Council Document 6 of 1995, which decided to turn the pay-as-you-go system into a defined-contribution and partially funded one: a social pooling plus a funded individual account. This change was made based on several widely assumed advantages of the funded approach, including efficiency, equity as well as effectiveness in combating population aging (Chow & Xu, 2002). It was held that the previous pay as you go system was designed mainly to meet the needs of employees in the state sector. If employees in non-state sector are included in such a system, inequity will result, as they would become net contributors. On the other hand, a funded approach is viewed to be not only able to reflect the market economy principle of self-reliance and individual enterprise that China has been encouraging since the economic reforms, but also would motivate employees from outside the public sector to participate in the system.
In practice, State Council Document 6 proposed two plans in which social pooling and individual accounts could be combined with different emphasis, and allowed local governments to choose between them or design their own plans based on their local situation.This led to wide variations in contribution rates, the size of the individual account and benefits across the nation, depending on local ideologies about or interpretations of the principle of combining efficiency and equity. Such a widely variegated national pension system was not only difficult to administer by central government, it also posed problems of portability and gaps in benefits across localities. To correct the problems, State Council issued Document 26 in 1997, Decisions on the Establishment of a Unified Pension System for Employees in Enterprises, proposing to make three “unifications” to the system in the years to come: First, the contribution rates were unified to be 20 percent of the total wage for enterprises and 8 percent of the wage for individual contributions. Second, the size of the individual account was unified to be 11 percent of a worker’s wage, into which individuals contribute 8 percent and enterprises 3 percent. Finally, the method of providing benefits was unified. Retirement benefits were to consist of a basic pension and an individual account pension, taking into account both the wage and the accumulated savings in the individual account. A worker who reached retirement age after contributing for at least 15 years was to get a monthly basic pension equivalent to 20 percent of the average local wage in the year prior to his/her retirement, plus a monthly individual account pension equivalent to the funds in the individual account divided by 120 (months).
In the subsequent years, reform of the urban enterprise pension system was mostly focused on adjusting the benefit structure and size of the individual account. In 2000, State Council revised the pension scheme again through its Document 42, which contained three major changes: First, the size of individual account was reduced from 11 percent of the wage to 8 percent to be based solely on individual contributions. Second, funds in individual accounts were to be managed separately from social pooling funds. This separation was intended, on the one hand, to make individual accounts into fully funded funds to be managed through the capital market, and on the other hand to prevent social pooling from borrowing money from individual accounts. Third, to compensate for benefits reduced due to reduction in the size of individual accounts, the level of the basic pension was raised by relating it more closely to the years of contribution in excess of 15 years. A worker reaching retirement age after contributing for 15 years would get a monthly basic pension equivalent to 20 percent of the average local wage. If the worker has contributed more than 15 years, s/he will get another benefit from the basic pension for each additional year of contribution until the total benefit reaches 30 percent of the average wage. After several years of experimentation of the revisions in three provinces in the northeast region of China where pension burdens were particularly high, the benefitstructure and the size of the individual account were affirmed in State Council 2005 Decisions on Perfecting the Pension System for Workers in Enterprises, which required nation-wide adoption of the revised system starting from 2006 on. The Decisions also made some modifications in the benefit formula. The amount of pension from the individual account is determined with reference to life expectancy, retirement age, and interest accumulated in the account. A retiree is able to receive a monthly payment equivalent to the fundsin the individual account divided by 139 (life
expectancy at age 60) instead of being divided by 120 (months). The amount of the basic pension was to take into account the average and individual wage prior to retirement and the number of years of individual contribution. That is, upon retirement, a worker can get a monthly payment of 1 percent of the mean of the average wage plus indexed individual wage for each year of individual contribution. In addition, emphasis was put to turn individual accounts from notional to fully funded accounts.
Since then, the major efforts of the government have been to expand the coverage to the informal sector. With increasing role of the government, a separate pension program for urban residents outside the workplace began in local trials in 2009 and 2010 in a number of cities such as Beijing, Chongqing, Xi’an, and Kunming. The experiment was expected to cover 60% of the cities in 2011, and for nationwide adoption by 2012. Its implementation was in response to the fact that in most cities there have been large numbers of people who are ineligible for coverage by the employee pension system. As such, the State Council 2011 Guidelines for Establishing Pensions for Urban Residents (State Council, 2011), stipulated that eligible participants include all urban residents aged 16 or above other than current students, who are not affiliated with a workplace and are thus not eligible for participation in the pension schemes for employees. With the establishment of this kind of the pension system, all urban residents are
covered by the pension system.
3.4 The establishment of unemployment benefits
Unemployment benefit schemes in China started to be established also in the mid-1980s following State Council 1986 Temporary Regulations on the Establishment of Unemployment Insurance, which required local governments to set up unemployment insurance programs for workers from bankrupt enterprises, those being laid off by insolvent enterprises, workers who lost jobs upon termination of labor contracts,and workers being dismissed. Participating enterprises were required to contribute 1 percent of the total standard wage.Benefits consisted of a regular relief payment, medical care fees, death compensation and funeral expenses, and survivors’ compensation. The funds were also available for paying pensions for retirees of bankrupt enterprises and providing
training programs and financial assistance for unemployed workers to organize for economic activities. Both the duration and levels of benefits were related with the length of service and the standard wage. The maximum period was 24 months if s/he had over 5 years, and 12 months if s/he worked less than 5 years. The unemployed could get 60-75 percent of the wage during the first 12 months of unemployment and 50 percent for the remaining 12 months. The regulation also made it clear that government would be the ultimate bearer of the responsibility in providing
benefits in case the pool became insolvent.
Entering the 1990s, the number of involuntarily displaced workers in enterprises increased rapidly. To facilitate further reform of enterprises, in 1993 State Council issued Regulations on Unemployment Insurance for Employees in SOEs,which expanded coverage to all types of workers in SOEs who lost their jobs due to various reasons.
Contribution and benefit rates were also revised, with local governments given discretion for determining the exact levels. Since the mid-1990s, urban labor force began to shift rapidly from the state to private sector. Unemployment was no longer a phenomenon in the state sector.In fact, employees in the private sector were facing more chances to lose their jobs. It was widely recognized that unemployment insurance should also be made available for employees in enterprises with other types of ownership. On the other hand, there was also the need to expand the funding base of the schemes by including participants beyond the state sector, as the number of workers in SOEs was declining rapidly. In recognition of the above situation, in January 1999, State Council issued Regulations on Unemployment Insurance, which is turned unemployment insurance a compulsory program for all enterprises and workers in China.
The Regulations made several changes in the unemployment insurance system, which has been the major document governing the operation of the unemployment insurance system in China. First, the coverage of unemployment insurance was extended to all types of employees and formal work organizations in cities, except for governmental organs and their workers 4 .Local governments were allowed to extend coverage further to other types of urban labor force such as employees in mass organizations,NGOs,the selfemployed and their employees. Second,enterprises and employees were both to contribute to the schemes, with enterprises contributing 2 percent of the total wages, and employees 1 percent of the individual wage. Third, benefits were made to be related to length of years the worker had contributed to the funds. The exact level of benefits was to be determined by local governments according to individual situation, provided that it is below the minimum wage and above the threshold of social assistance. The unemployed living on unemployment benefits was also eligible for social assistance if s/he qualified. Fourth, items of benefits covered by unemployment funds were also changed. During the benefit period, an unemployed was covered for five items of benefits: unemployment benefits, medical care expenses, funeral expenses and survivors compensation, subsidies for accessing services of training and job introduction, and other
items of expenses related with unemployment as determined by the State Council on a case by case basis. Compared with the items of expenses contained in Document 110 of 1993, two important changes were made regarding the expenses of the funds. One was that the funds would not be available for providing financial assistance for the unemployed to re-start or organize for economic activities. This item of support was eliminated because it proved to be ineffective. Another change was that administrative expenses were to be appropriated by the government through separate channels, instead of allowing funds management agencies to take a certain
percentage of the unemployment funds as administrative expenses. Finally, the Regulations also made changes in the base of pooling. In cities directly under the central government and those in which the municipal jurisdiction consists of district governments5, a unified pooling at the city-level was required. In other types of localities, local governments were allowed to determine the scope and base of pooling.
Along with the efforts of establishing unemployment insurance for the unemployed, throughout the 1990s and early 2000s there was another program which delivered benefits and services to laid-off employees. Combined with the social assistance, this made up the three-tier social security system in China.
The term “unemployment” was not used officially in China until 1994. Indeed, unemployment in the sense that a worker lost his job was a rare phenomenon in the pre-reform China. During the planned economy era China adopted the policy of“high employment and low wages” and a permanent labor system in the state sector.
Employees were assigned to work-units by the government according to plans, and their jobs were usually maintained on a permanent basis. Enterprises could neither refuse to accept nor dismiss employees they did not need, and were obliged to maintain and provide benefits for all employees being assigned to them. Under this situation, few employees would lose their jobs once they were assigned to a working unit. People who were yet to be assigned a job were often referred to as “people waiting for jobs”.
However, this high employment was sustained at the cost of nationwide high implicit unemployment or underemployment in SOEs, which became surplus workers in SOEs in the early 1980s when SOEs were given increasing autonomy over production and management and were made responsible for profits and losses. Under this condition, efficiency became the primary concern of enterprises, in contrast to the practice of SOEs during the planned economy era when providing care for their workers was the most important task. Since the 1990s, unemployment began to increase rapidly along with the restructuring of SOEs, which introduced a series of measures to invigorate SOEs for making profits and increasing efficiency. SOEs were encouraged to restructure
their labor force through such methods as“optimizing regrouping”, and “assignment of posts through merit”, which were almost synonymous to reducing employees. With the removal of government guaranteed jobs, many workers were unemployed as a result of dismissal, bankruptcy or termination of contract (Chow and Xu, 2002;
Leung, 2003, 2006).
As such, unemployment emerged in China in three forms at different times: surplus workers, laid-off employees and the unemployed. In the earlier years of economic reforms, the unemployed was referred to as surplus employees. The term surplus workers implied a temporary status of being out of work, and enterprises
continued to provide for them and were responsible for assigning them to suitable jobs. During the 1980s, although enterprises were given increasing autonomy over production and management and were encouraged to take measures to reform the permanent labor system, dismissal of workers was still an unfamiliar and unacceptable measure for both enterprises and workers. SOEs were then still expected to keep as many workers as possible.
Since the early 1990s, enterprises were gradually no longer obliged to contain surplus workers for long. This gave rise to the phenomenon of “laid-off employees”, which increased rapidly throughout the 1990s and early 2000s. However, SOEs continued to take care of them through a temporary program jointly funded by SOEs, local governments and unemployment insurance funds, which provided cash assistance for them to maintain a basic living for a maximum period of three years6. Only if they failed to find a job during this period, the laid-off employees would be treated as unemployed.
3.5 The development of urban social assistance programs
During the planned economy era, China had a government-funded social relief program which was established in the early 1950s. The program provided cash and/or in-kind help to childless old people outside a work unit, because most urban people had a work unit to take care of their needs. Few people were in need of this support, making it a negligible element in the social welfare system. Following economic reforms, this benefit has been limited only to the “three kinds” of people, who are usually old people without work ability, family caregivers, and people without any sources of income. As the implementation of social insurance programs have been mostly based on state owned enterprises (SOEs), this led to the exclusion of increasing numbers of urban people from the
formal social protection system7.
Along with the establishment of the social insurance schemes, the early 1990s began to see increasing numbers of urban residents falling into poverty, the size of which was estimated to range from 12 million to 30 million (Hong & Wang, 2002; Tang et al., 2003; Guan, 2003). Termed as New Urban Poverty, its causes included many factors. Apart from rapid increases in the number of unemployed or laid-off employees, the incomes of current employees and retirees were also affected due to the generally poor economic performance in most SOEs. Many SOEs had difficulty in delivering pensions for retirees and financial assistance for laid-off employees, and in some
SOEs even wages for current employees could not be guaranteed. People fell into poverty even though they were employed or had a pension or other benefits. This led to the issuance of “Two Guarantees” document in 1999 by the then Ministry of Labor and Social Security, which pressed SOEs and local governments to deliver pensions for retirees and financial assistance for laid-off employees both timely and sufficiently. In the following years the Two Guarantees policy became a top issue in the agenda of the central government. Furthermore, as increasing numbers of urban labor force shifted from the state to nonstate sector8 where social protection policies were
virtually absent, there were many chances for them to fall into poverty again. Finally, due to increased commodification of many basic social services such as education and healthcare since the early 1990s, urban families were faced with huge financial burdens, leading to the phenomenon of “poverty due to high medical or
educational expenses”. As most of the newly poor came from among laid-off employees from SOEs, social stability was threatened.
Obviously, the social insurance schemes failed to function as expected. Thus, toward the end of the 20th century the attention of the central government was drawn to social assistance as a tool to deal with the problem of urban poverty. Since then the emphasis of social welfare reform in China has shifted from social insurance to social assistance. A means-tested social assistance scheme, known as the Minimum Living Standard Guarantee System (dibao), was developed by the government. The scheme was first introduced in 1993 in Shanghai, followed by
voluntary trials in a number of wealthier cities, and was extended nation-wide in 1999 following the passing of a law by State Council9. The earlier schemes were designed by local governments based on local conditions, varying markedly across cities in terms of financing, levels of benefit rates, and eligibility criteria.
Due to the reluctance of local governments to take up the burden of financing benefits for poor people emanating from enterprises, these schemes operated based on a “take home your own child” approach - dibao provided assistance only to households being traditionally the targets of publicly funded social relief, while for those
households affiliated with a work unit, the role of Civil Affairs10 was only to determine eligibility while applicants were required to submit application to their work units. Upon approval, the work units were to deliver the benefits to them together with their wages. As such, the receipt of dibao benefits for the non-civil affairs targets depended on the
financial ability of the enterprises.
State Council Document 29 of 1997 and its subsequent legislation in 1999, Regulations on the Guarantee of a Minimum Living Standard for Urban Residents, put an end to local trials by providing a nationally unified basic structure for the program 11 . One important change brought about by the document is the extension of eligibility from previously only a few categories of people to all urban households with incomes falling below the poverty line. Both documents, however, continued with the principle that financing of dibao was primarily the responsibility of local governments, and that funding from the central government would only be available when local finance was difficult12. The first break of the local responsibility for welfare policy occurred in 1999 when the central government began to subsidize local governments for setting up dibao13, in response to the widely recognized fact that social security recipients were mostly living a substandard livelihood. Accompanying increases in the amount of central transfers, the number of dibao recipients also increased rapidly from 2.66 million in 1999 to 4.03 million in 2000 and further to 11.7 million in 2001 (Ministry of Civil Affairs, 2002).
It seemed that more money from the central government would result in more people eligible for benefits. Baffled by the figures, in early 2002 the Ministry of Civil Affairs made a national investigation of poor households, which identified a total number of 19.38 million poor people eligible for assistance. It was also realized that reliance on local governments for funding was insufficient, a main reason for the heretofore generally low benefit levels and small coverage across cities. Afterwards, central transfers increased substantially. In 2006 transfers from the central
government reached 13.6 billion Yuan, representing over 60 percent of the total costs. Along with the increase of central transfers, the number of dibao recipients also increased rapidly to over 22 million in 2002. In 2008, a total number of 11.1 million urban households with 23.35 million people were receiving benefits from the schemes
(Ministry of Civil Affairs, 2009), accounting for 3.85 percent of the urban population.
Nationally, urban dibao shares more similarities in policy design and implementation than differences which are found mainly in the levels of the poverty line and benefits, largely reflecting different levels of economic development across regions and cities 14 . Although the central government has provided only broad guidelines for policy design and implementation, and local governments are also given discretion over developing their own
policies, the operation of the urban dibao in China can be described as “one system with different levels of benefits”. Being a means-tested benefit program financed out of government revenues, dibao provides cash assistance for households with per capita incomes falling below local poverty ines (or social assistance lines), which were determined mostly through the budget standards method with adjustments to the local contexts and
often availability of funds.
The objective of dibao is to provide a “safety-net” to such households and individuals, and in practice its benefits covered mainly food, clothing and a few daily necessities such as fuel, electricity, and water. Due to the stringent test of household incomes, benefits are generally available only after family resources are exhausted, so that those covered by social assistance are usually already impoverished. Although most places used the budget standard methods to determine the poverty line, many cities tend to use a expenditure-by-income approach in deciding coverage and the actual amount of benefits for recipients. This is mainly due to financial constraints in providing the required matching funds. As such, benefits are usually available to only the poorest and levels are generally very low.
In 2008 the assistance threshold averaged nationally 205 yuan per month (Ministry of Civil Affairs, 2009). Compared with the national average wage of urban employees and disposable income of urban residents, which were 29,229 yuan (Ministry of Human Resources and Social Security, 2009) and 15,781 yuan in 2008 respectively (National Bureau of Statistics of China, 2009), the levels of social assistance were very low, representing less than 10 percent of the wage and 16 percent of the incomes for urban residents. Largely due to the vast number of lowincome or marginal poor households who may be disqualified for dibao for a small amount of money, both the central and local governments are wary of increasing the benefits, which may lead to substantial increases in the size of dibao beneficiaries and heavy burdens on government revenues.
In the following years, a number of supplementary social assistance schemes were also implemented
for dibao recipients to deal with the multidimensional problems of poverty, including Medical Financial Assistance (MFA), Education Assistance (EA), and Housing Assistance (HA), and a variety of other preferential policies such as
heating. Among them, MFA reimburses part of the medical costs for dibao recipients, and recently in some cities low-income households are also eligible for the subsidies at a lower rate than that provided for social assistance recipient households. EA was also designed to provide cash subsidies to dibao recipients to cover part of the costs for their children receiving school education, with different rates for compulsory and tertiary education. HA is also catered mainly for dibao recipients but those with incomes higher than the poverty line but lower than a certain fixed
amount are also eligible for renting subsidies. A household with housing area below the local threshold can rent a house in the market and then get reimbursed for part of the costs. More recently, in some cities in the eastern coastal provinces such as those in Zhejiang and Jiangsu where rural-to-urban migrant workers have been concentrated, there have been attempts to extend eligibilities for social assistance to the migrant population. However, these initiatives are limited in scope and are still in the experiment stage.
3.6 The rebuilding of the rural social security system
The development of social policies for the rural population has been slow, with substantial progress being made only very recently. Until the mid-1990s, poverty in China was predominantly a rural phenomenon. Due to the fact the most of the reform activities occurred in the cities and around SOEs, the major efforts of the government in
building the social security system was focused on the cities, while that for rural people was postponed to a later stage – over twenty years later following the inception of rural economic reforms. Rural residents were expected to rely on land and the family for meeting needs. Apart from a residual social assistance program (e.g. wubao) inherited from the planned economy era, which took care old people without children, government efforts were focused on reducing development related poverty through a major program named Development-based Poverty Alleviation Policies.
Since economic reform that started in the early 1980s, China has made substantial reduction in the size of its rural poor population, which fell from 250 million in 1981 to 35.97 million in 2009, based on the official poverty line of an annual per capita net income of 1,196 Yuan15. This was often cited as a global success story (UNDP, 2005).
Economic reforms have contributed enormously in raising the living standards of the general population in China and are regarded as the most effective measure in reducing development related poverty that characterized pre-reform China (Wang et. al., 2004). The rural population has certainly benefited from the reforms, although this may indeed be due to the “trickle down effects” as envisaged by policy makers in the early years of the reforms who believed that economic growth is the ultimate solution to poverty. Nevertheless, the removal of the tight state control over the economic activities of peasants resulted in continued increases in their incomes in the years following the reforms, which directly contributed in raising the majority of rural poor population out of poverty, particularly in the early years of the reforms.
In the course of the economic reforms, China has attempted a number of ways to reduce rural poverty and rebuild the rural social security system. In terms of rural poverty reduction, the most important project has been the
Development-based Poverty Alleviation Policies16, which has continued into the present as the major measure to contain rural poverty. Meanwhile, the dismantling of the collective economy welfare apparatus and persistent poverty in the countryside, combined with demographic changes, necessitated the government to rebuild the rural social security system. The government began to explore measures for the task as early as in the mid-1980s. In the beginning, social insurance was thought to be an adequate solution to the transition from a planned to a market economy, and in the later years social assistance was emphasized. Programs were first set up for the urban and formal sectors and then gradually expanded to the rural and informal sectors with similar designs. As such, the current rural social security system includes both social insurance and social assistance schemes.
3.6.1 The experiment on rural old-age pensions
Concern for rebuilding the rural social security system came to the attention of the government in the mid-1980s. In the “Seventh Five-year Plan” passed in 1986, the government first proposed to build “a socialist social security system with Chinese characteristics”. Population aging and implementation of the single-child family policy17, which also contributed to the acceleration of population ageing, were among the widely acknowledged imperatives for building the rural social security system. Priority was given to the establishment of old-age pension, which were seen as matching the spirit of individual responsibility generally thought to be compatible with a market economy that China’s economic reforms were moving towards (Chow and Xu, 2001). This was also facilitated by the fact that increasing numbers of rural labor force were employed in nonagricultural production particularly in the mushrooming village and township enterprises (VTEs). In many of these places, most of the labor force worked in VTEs, and their family farm plots were often managed as “collective farms” by the village committees. Farmers earned income by working in the VTEs, and bought food for consumption, a style of living that is of little difference from the urban residents. As such, the mid-1980s began to see an increasing number of locally initiated rural pension schemes in the wealthier localities, which were largely a modified version of the urban enterprise pension schemes.
The implementation of the rural pension schemes went through a process of experimentation and promotion, as was the case with other reform policies. As early as early 1980s a variety of community-sponsored and managed rural pension pools appeared in the rich regions where employment in VTEs was the dominant source for farmers to earn income. The schemes differed widely in terms of funding, management, coverage, and benefits. In 1987 the Ministry of Civil Affairs (MoCA) was put in charge of investigating the schemes and “exploring rural grass-roots social security” by State Council (MoCA, 1987). After several years of experiment, MoCA in the early 1990s began to promote the establishment of“county-level unified rural old-age pension scheme” in economically developed areas. As a result, most of the former community-based schemes were gradually merged into the new county-level schemes.
The funding of the county-level rural pension schemes was based on the same principle as that of the urban enterprise pensions. That is, individuals, collectives, and government shared the responsibility for financing. According to the Basic Plan of Rural County-based Pensions issued by MoCA in 1992, the schemes were run on a voluntary basis. Eligible participants included all farmers aged between 20 to 59 years, who could decide both the rates of individual contributions (ranging from a monthly sum of 2 to 20 Yuan) and the method of contributing (monthly or in lump sum). Collective economic entities or villages were required to subsidize the scheme with a maximum limit of 50% of individual contribution out of collective incomes. However, the share of the governments of the financing responsibility was in the form of preferential taxation policies – it allowed collectives to use profits from collective economic entities to subsidize the scheme before taxation. Finally, fund reserves were required to invest in
government bonds. Special sections were set up within the local civil affairs department to manage the schemes, with 3 percent of the funds being allowed to be used for administrative costs.
With the promotion by MoCA, the county-based pension schemes were rolled out rapidly across the country in the following years. By the end of 1997, over 90 percent of the counties had implemented the schemes, with 74.5 million farmers participating in the schemes and 0.61 million old people receiving pensions (MoCA, 1998). Following the establishment of the Ministry of Labor and Social Security in 1998, the management of the rural old-age pension schemes was handed over to the new ministry, which was given the responsibility of designing and managing social insurance schemes for both urban and rural areas. Afterwards, the number of counties implementing the schemes began to decline steadily following the 1998 Asian Financial Crisis, which led to a negative assessment by the government of the financial viability of the community pools as a means to provide rural old age security. Most schemes particularly in the less developed regions came to a halt. By the end of 2006, the number of participants declined to 53.74 million, with 3.55 million old people receiving pensions (National Bureau of Statistics, 2006).
The resumption of the rural pension schemes began cautiously in the early 2000s. In the 2002 CCPC 16th Plenary Session the central government encouraged only those localities with sound economic conditions to explore establishment of rural old-age pensions, medical insurance, and Minimum Living Standard Guarantee schemes (dibao). In 2007, a number of cities and provinces took the lead in setting up new rural pension schemes subsidized by government funds, including Beijing, Sichuan, Liaoning, and Ningxia. Nationwide experiment of this new model began in 2008 following the CCPC 17th Plenary Session which encouraged all local governments to experiment on government subsidized rural pensions. The experiments finally led to the launch of the New Rural Pension System in 2009 when State Council issued Document 32 Guidelines for Experiment of the New Rural Pension System. The new scheme adopted the partially funded approach, which consists of two tiers of benefits: a basic pension and an individual account. The basic pension is set at a minimum of 55 yuan per person per month. For current old people aged 60 and above, this tier of benefit is a universal benefit and does not require individual contribution. Benefits from the individual account are a monthly sum equal to 1/139 (based on life expectancy at age 60) of the total funds accumulated in the individual account.
3.6.2 Development of social assistance
As described above, reform in the rural economic system resulted in the absence of social protection
for most rural population. Main efforts of the government were focused on reducing development-related poverty through the development-based poverty alleviation Policies. While most of the poor households with ablebodied
members were lifted out of poverty due to the poverty alleviation efforts and other factors such as rural-urban migration of labor, and other income-generating sources, the remaining poor, which mostly consisted of the elderly, children, and people with major illnesses or disabilities, can hardly benefit from the ongoing poverty alleviation
policies, leading to vast unmet needs for the rural population. Assistance by the government steps in only when family resources are exhausted. Entering the 21st century, increased attention of government was given to the setting up or reform of various rural social assistance programs targeting the households. Among them, the major ones include wubao and the Minimum Living Standard Guarantee System (dibao).
Wubao
As described above, the program was the product of the collectivization period. In brief, during the collectivization period, the production teams provided for the “Five Guarantees” targets out of their collective income, and individual peasants did not bear the responsibility directly. With privatization of the rural economy, the funding responsibilities were changed to village collectives and township governments. In the early years, there were two kinds of funding methods: In places where villages maintained some form of collective economy, it was still the responsibility of the village committees to provide for them out of collective incomes; whereas in other places where
collective income was not available, “township unified collections and village retainings” were used for the benefits. That is, township governments and village committees collected cash or grain from individual households and then deliver them to the needy elderly. Thus, in the beginning years of the rural reforms, the main efforts of the government were to ensure continued provision by villages and townships for the“Five Guarantees”targets (MoCA, 1982).
One major measure concerning specifically this scheme during the period was the issue of State Council “Regulations on the Work of Rural Five Guarantees” in 1994, which laid down the basic principles with regard to eligibility, financing, types and levels of benefits, and methods of providing the service. The program was still defined as a collective welfare, but the township government was put in charge of its administration. Sources of funding were reaffirmed as to include the rural collective economy and the “township unified collections and village retainings”, whichever was suitable for the local situation. The targets of the scheme were basically the same as in the previous practice, except that eligibility included a definition of legitimate caregivers which were those persons who bore the legal duty of family support as set by the Marriage Law of 1980. Provisions were refined into five categories, including food, fuel; clothing, bedding articles and pocket money; housing with the basic necessities; medical care, and for those elderly unable to perform the daily activities, a person was to be arranged to provide nursing care; and an
adequate funeral. Levels of benefits were left to the discretion of the local government. The only requirement of the central government was that it should not be below the general living standards of the local villagers. Finally, the Regulations encouraged township government to set up homes for the aged and also allowed the homes to engage in income-generating activities and use the profits to improve services. Local government was also required to provide support for the economic activities.
The 1994 Regulations soon met with new difficulties in financing the scheme. The “township unified collections and village retainings”were intended to cover village administrative costs and a limited number of communal welfare items, including care for the needy elderly. However, the policy soon became abused by the local
government as an important source of incomes outside of the budget. Both the items and amount of collections climbed rapidly in the following years, which became an increasingly heavy burden on the farmers as well as a major source of social disturbance in the countryside. For these reasons, throughout the 1990s the central government took various measures to “reduce peasant’s burdens”. This led to the implementation of the “Fee-to-Taxation”reform policies in 1998, by which the previous practice of collecting fees from villagers was removed and replaced by levying an agricultural tax on the farmers. Further in 2003, agricultural taxation was also abolished. Thus, townships and villages were no longer able to rely on “unified collections”for sources of funding, and the financing of the Five Guarantees program again became a problem.
This led to a second revision of State Council Regulations on the Work of Rural Five Guarantees in 2006, which eventually turned the scheme from a collective to state-run program. The funding responsibility was taken over by the government in the form of a block grant by the central government for township and village administration, which includes money for financing benefits for the elderly cared separately in the villages. Meanwhile, county government was held responsible for the funding and managing the homes for the aged. Thus, the wubao scheme was divided into two separate programs with the central and local government sharing the financing responsibility. The revised Regulations also redefined the benefit levels for the Five Guarantees targets as the average standards of local residents, which are regarded as a progress over the previous vague definition of “general”standards. It also provided a definition of legitimate caregivers, which includes parents, children, and grandparents who bore the legal duty of family support as set by the Marriage Law of 2001. Benefits are grouped into five categories, including food and fuel; clothing, bedding articles, and pocket money; housing with the basic necessities; medical care; a person to be arranged to provide nursing care for those elderly people unable to perform daily activities; and an adequate
funeral. Under the program, wubao recipients can be cared for either separately in villages or collectively in the homes for the aged, depending on the physical condition of the elderly or the availability of beds in the homes. Levels of benefits were left to the discretion of local governments, which averaged 1,500 Yuan for separately cared elderly and over 2500 yuan for those cared in the homes for the aged. By the end of 2010, the program covered about 5.7 million elderly people, of whom 1.56 million were cared for collectively in the homes for the aged and 3.93 million separately in villages (MoCA, 2010).
The Minimum Living Standard Guarantee System (Dibao)
The launch of the rural dibao was mainly in response to the generally alleged inefficiency of the Development-based Poverty Alleviation policy in tackling current rural poverty. The program started in the mid 1980s as a major tool to address rural poverty. It used a geographical targeting method, by which poor counties were determined by either the national or local governments as targets for poverty reduction. Its main strategy was to create income-generating sources and improve the general living conditions of the rural population, such as improving infrastructure, providing employment opportunities through public works or creating enterprises funded by earmarked poverty alleviation funds, and organized migration of poor people to well-off places. While it is widely acknowledged that the program played an important role in reducing rural poverty, changes in both the incidence and nature of rural poverty since the mid-19990s has rendered the geographically based approach to be increasingly inefficient. In the early decades of the reforms, rural poverty was mainly a development related phenomenon and poor population was composed of mostly people with working ability but lacking necessary means or opportunities to engage in income-earning activities. As such, the development approach to poverty alleviation enabled most individuals and households with the ability of working were gradually lifted out of poverty.
Since the second half of the 1990s, however, poverty reduction slowed down despite continued increases in the poverty alleviation funds18. One major factor contributing to the slow-down of rural poverty reduction was that the remaining poor became geographically more scattered, as an increasing proportion of the poverty was caused by disability or illness. According to the 2005 Poverty Monitoring Report of Rural China by the National Bureau of Statistics, the spread of rural poor population was not only limited to mountainous and ethnic minority areas, but also in many non-poor counties and even in the rich areas, with the aged, the sick and the disabled becoming the major component of the rural poor population. Obviously, the county-based development approach to poverty alleviation can
hardly reach these hard-core poor. In other words, natural conditions such as scarcity of resources and frequent natural disasters had been prominent causes to poverty in the rural areas, which provided the rationale for the developmentoriented poverty alleviation approach. However, lack of labor, illness, and more recently education
for children has been found to be the main factors in pulling rural households into poverty. Rural poverty became more related with problems of households or individuals, more than the result of local economic development. For this reason, the remaining poor can hardly benefit from the development approach to poverty alleviation, which relied mainly on the ability of households to work in income-generating activities.
The solution to the rural hardcore poverty was found in the then widely acknowledged success of a social assistance program, named Minimum Living Standard Guarantee System (dibao). For most of the time since economic reforms started in the early 1980s, China’s social policy has been guided by a strong belief in the primacy of economic growth that would ultimately benefit all citizens and lead them out of poverty. In line with this belief, reforms in the social security system were implemented for a long time to establish social insurance programs mostly based on state owned enterprises (SOEs) in the cities, leaving the majority of people particularly those in the nonstate sector and rural areas having no formal social protection. Entering the mid-1990s, a general shift of emphasis in China’s social security reform was made from social insurance to social assistance in response to limited coverage of social insurance programs and emerging poverty in the cities. The urban dibao scheme was first introduced in 1993 in Shanghai, followed by voluntary trials in a number of wealthier cities since 1996, and was extended nation-wide in 1999 following the passing of a law by the State Council19.
Along with the experiment of dibao in the cities, rural dibao began in local trials in the mid-1990s in a few economically developed provinces. With the promotion of MoCA and its local counterparts, it was adopted by an increasing number of counties in the less developed regions in the following years. Due to economic constraints, however, most of them dropped out of the experiment and moved to a temporary assistance scheme named Assistance for the Extremely Poor Households, which provided temporary relief to rural households impoverished by major illnesses or loss of family labor.
In the early years, the financing of rural dibao was defined exclusively as the responsibility of local governments and rural communities. The major policy document governing this program was “Suggestions on speeding up the establishment of rural social security system” issued by MoCA in 1996. The document laid down some broad
guidelines on financing, standards of benefits, and the intended beneficiaries, and the details were left to local government’s discretion. In the following years, an increasing number of provinces and counties issued policies and operational plans with regard to the design, financing, and delivery methods of the schemes largely based on the design of urban dibao. The funding responsibility was often shared among different levels of government (e.g. provincial, prefecture, municipal, county and township governments) and villages. The proportion each party should share was also to be decided based on the local context, and the local civil affairs department was put in charge of managing the schemes. Means-testing was the basic targeting method. The general practice was that an assistance threshold20 would be first determined by provincial or county governments based on local conditions. Households with per capita income falling below the poverty line would be eligible for the benefits, and receive the difference between the poverty line and the household income. By 2001, over 80 percent of the counties reported to have set up the schemes.
Following the implementation of Fee-to-Taxation reform policy and the subsequent abolition of agriculture taxation in 2003, many localities lost the financial basis for townships and villages to share their portion of the funding, and an increasing number of counties ceased to practice the scheme. It turned out that only those economically fast developing regions were able to afford the provision. Most schemes particularly in
the less developed areas failed to deliver the promised support for the poor, and operated with little difference from the former temporary social relief. In response to this situation, in 2003 State Council and MoCA issued new policy guidelines,cautioning local governments not to hurry into the scheme. In particular, the schemes were encouraged to be explored in places where local economic conditions would allow, whereas for those economically constrained localities the advice of the central government was to improve and continue with the Assistance for the Extremely
Poor Households scheme. Consequently, the rural dibao schemes were maintained mainly in the economically developed regions where local governments can afford the expenditure. Most of the counties which had relied on townships or villages for financing the program dropped out of the experiment and moved on to the Assistance scheme as an alternative.
The attitudes of the central government towards the establishment of rural dibao changed markedly in the CCPC Sixth Plenary Session in 2006. While in 2005 State Council reiterated that local economic ability was a condition for “exploring” the schemes, the Sixth Plenary Session concluded with explicit encouragement for the establishment of the schemes throughout the country. Following the Sixth Plenary Session, local governments were encouraged to set up rural dibao. The decision to establish rural dibao nationwide was restated in Premier Wen Jiabao’s Government Work Report to the March 2007 National People’s Congress, and was announced further in the State Council Circular on Establishing Rural Dibao Nationwide in July 2007, which proposed that dibao would be established throughout the country by the end of 2007. As expected, rural dibao was rapidly extended to most counties by the end of 2007. One major stimuli for local governemnts to adopt the schemes was the availability of central transfers for the program. In 2007, for the first time the central government allocated 3,000 million Yuan to subsidize local governments for the schemes, which increased substantially over the years. Since then, most townships and village collectives are relieved of the funding responsibilities, and coverage also increased substantially. Increases in the amount of central transfer and program coverage are presented below.
Coverage and funding of rural dibao 2007-2009 (in million Yuan)
By the end of 2010, the program covered 52 million rural residents, accounting for 5.5% of the agricultural population at an average cash allowance of CNY 64 per person per month (MoCA, 2011).
The design of the rural schemes is a modified version of the urban ones. In brief, a poverty line or assistance threshold would first be determined by the provincial and county governments. Households with per capita income falling below the assistance threshold would be eligible for benefits covering the difference between the threshold and household incomes. According to 2007 State Council Circular on establishing the rural minimum living standard guarantee system nationwide, the threshold for rural dibao should be "determined by governments at or above the
county level in accordance with the costs required for local rural residents to maintain a basic living, namely food, clothing, water, electricity and so on", and be adjusted along with changes in the local basic living necessities and improvement of people’s living standards timely. The most commonly used method by local governments in setting the assistance threshold for rural dibao is the budget standards method. By this method, local officials, mostly those from civil affairs, would first develop a list of “necessities” for an individual to maintain a subsistence level of living through household surveys. Then, the market retail price would be used to calculate the costs of each necessity. The assistance line would be finally determined as the sum of the costs of the necessities.
In practice, two methods have existed in the provision of benefits to a recipient household: One is based on the calculation of the difference between household incomes and the threshold, and another based on the characteristics of the recipient households and their members only loosely related with the threshold. The two methods were also contained in the national policy documents. In Circular on Strengthening Rural dibao Funds management jointly issued by the Ministry of Finance and the Ministry of Civil Affairs in 2007, the amount of rural dibao benefits can be provided either to cover the difference between family per capita net income and the threshold or by grouping eligible households into different categories according to their severity of poverty. The former is often called “difference-based assistance”, that is, benefits are provided to cover the difference between the threshold and family incomes. The latter is often referred to as“categorical assistance” – the amount of benefits is prefixed for households or individuals based on the degrees of poverty. In other words, differencebased assistance links the amount of benefits directly with the threshold and household incomes, while categorical assistance is only loosely related with the threshold. For the difference-based method, there is no need to set the levels of actual benefits, but if the categorical method is used, the actual benefits have to be set beforehand. Because most localities have used the categorical method, much of the work in setting dibao benefit rates has been done to differentiate between households to reflect the degrees of poverty.
Accordingly, two methods have existed in targeting the poor. According to 2007 State Council Circular on establishing the rural minimum living standard guarantee system nationwide, “the targets of rural dibao are rural residents with annual per capita net incomes in the household falling below the local assistance threshold, who live in chronic poverty due to illness or disabilities, old age, poor health, loss of work ability or disastrous natural conditions”. That is to say, there are two criteria to determine the eligibility of rural residents for dibao: per capita annual net income of the family and individual or household characteristics. The former method implied the use of means-test to verify the incomes of a claimant household, while the latter determines eligibilities based on characteristics of household members. Under the former criterion, all rural residents with per capita income in the family below the local assistance threshold are eligible for dibao payments, but according to the latter criterion, receipt of dibao benefits is linked with individual characteristics. As such, local governments have much flexibility in determining eligibilities. This has led to the existence of two targeting methods in practice: household based means-test and individual based categorical targeting. While the former method involves two procedures: means-test of household incomes and community democratic screening, the latter relied mainly on community democratic processes in selecting the poor households and determining the actual benefit rates.
NCMS
As described previously, the 1980s witnessed a rapidly dismantling process in China’s rural medical facilities and services as a result of reforms in the rural economic system. Entering the 1990s, the collapse of the rural healthcare system was followed by a nationwide trend of privatization or market-oriented reform in China’s health system, which further exacerbated problems of access to health care for the rural population. For the government, several mutually related objectives were attached to the market-oriented reforms in the health sector. One was to make publicly owned hospitals compatible with the socialist market economy toward which China was moving. Others included cost containment and privatization 21 of social services, as well as providing incentives for hospitals, all of which were potential alternatives to government funding. A variety of reform policies first implemented for restructuring the state-owned enterprises were adapted to the process of reforming hospitals. As a result, hospitals were increasingly given autonomy in financing, service delivery, and remuneration of their employees. Most hospitals, including township and county ones, were consequently turned into self-financing institutions, which relied increasingly on fees-for-service. This led to soaring prices for medicine and medical service in the subsequent decades, and produced an increasing phenomenon nationwide of rural poverty stemming from chronic and major illnesses. According to the China Third National Health Service Survey, poverty due to illness increased from 21.6 percent in 1998 to 33.4 percent in 2003 (Ministry of Health, 2004). Other research revealed that nationally about 41 percent of poor households fell into poverty because of illness-related factors, such as loss of family labor or high costs of medical care (Han and Luo, 2005). In brief, since the mid-1990s both the media and academic research have frequently reported that rural families often borrow money, sell their productive assets, or cut short their children’s education in order to pay their medical expenses, or simply do not go to see the doctor when falling ill due to their inability to pay22.
Indeed, market-oriented reforms in China’s health care system have produced some disastrous results on the livelihoods of the general population. The impoverishing impact of catastrophic illnesses due to the combined effects of the collapse of rural CMS and rapid increases in the prices of medicine and medical services have been well recognized by the government. Throughout the 1990s, a major concern of the central government was to explore new schemes for rural health financing23. Beginning in 1993, a number of provinces were selected to experiment with various forms of community-financed health insurance schemes, based on low annual premiums and voluntary enrolment. Due to the absence of financing from the central government, however, these efforts resulted in only sporadic improvements, and some localities even dropped out of the experiment later due to financial constraints. By 1997, only a small number of the schemes proved successful, mostly in wealthy areas such as coastal or suburban areas. More importantly, as the new schemes were primarily township or village-based, they were obviously non-viable solutions for the rural poor.
It was not until 2002 that the role of the central government was substantially expanded. In that year, the State Council issued the noted Decision of the Central Government to Strengthen Rural Health Work. Labeled the “New Co-operative Medical System” (NCMS), the Decision announced that from 2003 onward, the central government would subsidize local governments in the middle and western regions for NCMS by providing 10 Yuan for each participant. Furthermore, in early 2003 the State Council approved the “Proposals on Establishing Rural New Co-operative Medical System” jointly prepared by the Ministries of Health (MoH), Finance (MoF), and Agriculture (MoA), in which the basic directions and principles for the implementation of the rural NCMS were outlined.
Compared with the previous schemes, the Proposals incorporated three major changes: First, the requirement for NCMS was to focus on covering the expenses of catastrophic illnesses or inpatient services rather than minor illnesses or outpatient care, as was the case with most former schemes. Second, county-based pooling replaced the previous township or village-based pooling, allowing localities to start with township schemes and then move gradually onto county ones. Finally, the central government became one of the major sources of funding in the middle and western regions in that local governments were required to jointly provide a minimum of 10 Yuan for each participant in 2003, which was the same rate subsidized by central government. In 2010, subsidies by central and local governments for each participant increased to 120 Yuan, while individual contribution ranged between 10-30 Yuan. Thus, funding responsibility in the less developed regions came to be shared equally between the central and local governments. Two other features in the previous schemes were maintained in NCMS: voluntary enrolment and copayment by participants, with individual premium being set at a minimum of 10 Yuan in 2003. With these changes, provincial governments were required to select at least two or three cities or counties for trials, anticipating that the schemes would be established nationwide in rural areas by 2010.
Again, central transfers had an immediate impact on the nationwide establishment of NCMS. By 2006, over half the counties across the country had set up the schemes,which varied considerably from place to place in both design and implementation. By 2010, over 96% of rural residents participated in NCMS (National Bureau of Statistics, 2011). Similar to MFA in design (described below), NCMS primarily provides coverage for expenses related to inpatient services. Benefits are paid ranging from 30 to 50 percent of the total medical costs and varying with to the types of service provider. In the early years, there were also varying floors for self-payment above which reimbursement was payable and ceilings of maximum payments by the schemes. Across the schemes, differences are found mainly in the details of the benefit structure and benefit levels. Along with improvement in funding, in many places, the co-payment floors were either reduced or removed, ceilings raised or removed, and reimbursement rates were also raised.
MFA
Local experiments with medical assistance schemes for rural poor households started in Shanghai and a few cities in Guangdong province in 2000 and 2002 respectively, where rural and urban residents were treated under the same package24. Nationally the decision to implement Medical Financial Assistance (MFA) for rural poor households was announced first in State Council 2002 Decisions as an integral part of the new rural health system. While MoH was put in charge of designing and implementing NCMS, the mandate to implement MFA was given to MoCA. Thus, following the State Council 2002 Decisions, a special document, “Proposals on the Implementation of Rural MFA,” was issued in 2003 by MoCA, jointly with Ministry of Finance, and MoH. The document set down basic principles for the program’s implementation. In brief, the goal of MFA was broadly defined as protecting the rural
poor households against poverty due to major illnesses. Therefore it provides assistance mainly for poor people to cover expenses for inpatient services or the treatment of major illnesses. Funds are used to support poor households’ participation in NCMS and also to cover part of their medical expenses after reimbursement by NCMS. The program is financed jointly by the central and local governments. Funding from the central government has been used to subsidize provinces in the middle and western regions, and local governments at different levels were required to share funding. Starting 2004, provincial governments were required to select two or three counties or cities as demonstration cases and then spread the schemes gradually to other localities. By the end of 2006, most counties and cities with rural population had established the schemes.
Faced with many constraints, particularly the lack of decision-making power over government funding sources and limited control over health service providers, MoCA adopted a learning-frompractice approach to the task. The implementation is decentralized to county authorities, which have considerable discretion over both policy design and implementation - including financing, eligibility, types of illness or services to be covered, and levels of benefits and payment methods - leading to marked variations across localities.
Financing was also shared by central and local governemnts. According to the 2003 Proposals by MoCA, the financing of MFA rests on a wide range of sources, including transfer payments from the central government, revenues of local governments, incomes from lottery funds administered by civil affairs at various levels, social donations and other funds available to the locality. Among them, money from the central government was used to subsidize local governments in the middle and western regions25, the amount of which increased from 300 million Yuan through 2003 and 2005 to 950 million Yuan in 2006 along with the schemes being extended nationwide.
MFA benefits are paid out in two ways. One is to provide a premium for the poor households, e.g., the current social assistance recipients, to participate in NCMS in localities where the scheme has been implemented. The other method is to allocate direct cash assistance from the funds. For poor households who receive support for NCMS participation, direct cash assistance is also available after the reimbursement of medical costs by NCMS; this is often called a “second assistance.” For other, non-poor households that are eligible for assistance, only direct cash assistance is available. A general feature of the MFA system is that it provides support for the cost of inpatient care or treatment for a major illness only and usually does not cover costs associated with outpatient care.
Apart from the fixed premium for NCMS enrolment, which is paid as a flat rate for all poor households (e.g. 10 Yuan), direct cash payments from MFA funds are made on a reimbursement basis. The amount of money for which an applicant can be reimbursed is usually set as a percentage of the total medical costs, which vary with different
categories of eligible households as well as the amount of medical expenses. Generally, recipients of Wubao are subsidized at a higher rate than other poor households, and non-poor households at a lower rate than poor ones. Reimbursement rates are usually designed based on a progressive structure. That is, the higher the medical costs, the larger the proportion to be reimbursed. In addition, most schemes have a fixed amount of floor money to be borne by the applicant, above which the costs are calculated for subsidizing.
In the 2003 Proposals by MoCA, the intended beneficiaries of MFA were primarily the dibao and wubao recipients, who constitute the poor households in rural areas. However, local governments were given discretion to include other categories of people to receive assistance. Localities usually have several locally defined categories of eligible people, in addition to the poor households specified by the central government. These often include recipients of various preferential policies administered by civil affairs, such as families of servicemen or martyrs,
people with disabilities in public posts or singlechild families. In most localities, eligibility was extended to all households whose livelihoodswere severely affected by the unexpectedly high cost of medical services, even though they are not currently receiving social assistance. As such, all households are potential MFA beneficiaries.
In the early years, one major prolem was that dibao recipients tended to be disfavored by both NCMS and MFA. While the social assistance recipient households constituted the major beneficiaries of MFA in that the scheme usually provided the premium for all of them to participate in NCMS, in most localities it was mainly the nonrecipients of social assistance who tended to receive most of the direct cash assistance under MFA (Xu and Song, 2006). This phenomenon is largely due to the reimbursement methods that have been followed and the limited rate of benefits, which make the receipt of MFA subsidies dependent on a variety of conditions that are met only with great difficulty by the poor households. Potential beneficiaries, including the poor households, are generally required to provide evidence of their medical expenses when they apply for assistance. That is, they have to pay their medical expenses before they can apply for support and then get the costs reimbursed. Combined with the fact that MFA covers only medical expenses for receiving inpatient services and that lump sum pre-payment for hospitalization is common practice in most hospitals. Poor households usually have to spend a large sum of money to pay their costs before they qualify for assistance. This led to a rather ironic situation in the MFA system, namely that receipt of benefits depends on the financial ability of eligible households to spend or borrow money in order to receive medical services. Poor households who cannot afford or manage to pay the costs first would not receive the support. Obviously, this is contrary to the goals of MFA, which aims to help the poor exactly because they cannot afford to pay the costs of medical care.
Since early 2007, the failure of the MFA system to reach the poorest of the poor due to high floors, low rates of reimbursement, and low ceilings was increasingly recognized by both central and local governments. Many provinces and counties have adjusted their schemes to increase the utilization of funds by the poor households. One major change is that basing the reimbursement method on evidence of medical expenses has been loosened and more flexible measures are used to enable poor households to receive medical services. Now, in most localities, poor households can apply for and receive cash support before they are hospitalized or during the hospitalization period. In fact, in many localities, civil affairs officials have never strictly adhered to the reimbursement procedures, particularly when the applicants are current recipients of social assistance. Instead, they simply provide them with a discretionary amount of assistance on a caseby- case basis, which differs little from other social assistance payments. Second, in most localities, eligibility for MFA assistance has been expanded to include outpatient service. For instance, in some counties in Zhejiang, Chongqing and Jiangxi, poor households living on Wubao and Dibao schemes are each given a medical care card and then a fixed amount of money is deposited in it for them to cover medical expenses related to outpatient care and buying medicine. This is partly in recognition of the fact that poor people tend to acquire major illnesses or often need to be hospitalized because they have neglected small illnesses. There is also more and more evidence that not only inpatient costs could lead to catastrophic expenditure, but also outpatient care. Finally, most localities have raised ceilings and reimbursement rates to varying degrees, and in a number of localities the self-payment floors have also been removed for recipients of social assistance.
By 2009, a total amount of 6.5 billion yuan were expended for MFA by governemnts at different levels, of which 1 billion was used for supporting the poor households to participate in NCMS,and around 5 billion for direct assistance (MoCA, 2010).
In sum, despite limitations in the operation of the rural MFA system, its implementation has provided an important source of support for the rural poor households. For most of the time, since the dismantling of the rural collective welfare apparatus following reforms in the early 1980s, alternative support for rural people in need other than from extended family has been scarce. Indeed, in the context of rural China today, while starvation is no longer an issue even for the most destitute, the general inability of rural households to access medical services has proved to be the most crucial factor in leading them into poverty and in preventing the poor from rising out of it.
4. Issues to be resolved
4.1 Social insurance
While social insurance programs have been expanded to cover the majority of the population, wide gaps in benefits exist across different systems. Ongoing efforts are being made to reform the pension and medical care systems for government organs and public institutions, expand coverage to informal and low-income workers, and improve funds management.
4.2 Social assistance
Social assistance is over-stretched to fill in the gaps left by social insurance and social service coverage, leading to difficulties in program administration and limited effects in reducing poverty due to illnesses or education of children. To a certain extent, the change of China’s social welfare efforts from social insurance to social assistance has reflected a shift of policy making from being ideologically driven to pragmatic concerns. While social insurance has covered mainly those people in the formal labor market particularly those in the state sector, social assistance has been both stringent and insufficient, although it has performed the vital role of facilitating economic reform and maintaining social stability through offering protection to the unemployed and laid-off employees (Leung, 2006).
As was pointed out by Leung and Xu (2009), the absence of universally accessible basic social services and programs that can benefit a wider segment of the population has made the implementation of the means-tested social assistance in China extremely challenging, leading to problems such as high administrative costs, low benefit rates, disincentives to work, and poverty trap for the marginal poor. In most welfare states particularly in many European countries, universal health care, old age pensions, and free education, complemented by generous and highly universal disability and family benefits, and substantial unemployment benefits, are the primary tools for social protection. In these countries, social assistance is only a last-resort option in terms of the entire social protection system; it steps in when all other social benefits have been exhausted (Adema, 2006; Saraceno, 2002). In contrast, in China social assistance was created as an integral component of the social security system filling in the gaps left over by social insurance programs, and was also intended to be the last resort of help for people in need. However, in practice it plays the sole and front-line role of social protection for those not covered by social insurances. Furthermore, based on locally defined benefit lines and using the households as the unit, only the poorest section of the urban population has been covered by social assistance programs.
4.3 Welfare-to-work efforts
To move able-bodied recipients into remunerated work has been a major concern of both central and local governments in China since the early 2000s when expenditures and coverage of dibao expanded dramatically with increasing numbers of unemployed recipients or low-income employees who are mostly able-bodied. From 2002 to 2009, around 60% of urban dibao recipients were ablebodied people either employed or unemployed, and in 2009 over 40% of rural dibao recipients were people of working age who able bodied26. While national data on the profile of recipients are not available, it is generally recognized that recipients rarely exit the benefit due to employment. This led to general public disapproval of the program as “encouraging people to be lazy” or creating “welfare dependency”.
Since 2004, most provinces and cities have implemented some combined measures of “sticks and carrots” to encourage able-bodied recipients to take remunerated jobs. Over the years, the Ministry of Human Resources and Social Security (MoHRSS) and MoCA have tested and promoted a variety of measures and “best practices” for adoption nationwide. In particular, the “labor market activation” measures found in the welfareto- work approach such as compulsory community work, job training, referral and placement service, gradual benefit reduction over time and with earned incomes, subsidies for social insurances, tax incentives for employers, bonuses for finding jobs, and access to credits for engaging in selfemployment or other forms of entrepreneurship have proven to be successful. More recently a number of localities have developed individualized employment services. The Departments for Human Resources and Civil Affairs would assign to each recipient family a government administrator or community worker to assess the economic situation and circumstances of the family, prepare a plan to exit from the dibao and guide toward employment. In addition the civil affairs administrators or designated community worker will also provide various support to former dibao recipient after being employed, such as coordination with employers in managing the employed recipients or in matters of laying off employees, helping recipients to obtain financial subsidies for employment or credits, and psychosocial support. It is widely reported that these measures have led to positive results. Meanwhile, in most places more stringent measures are attached to the conditions of benefit receipt for employable recipients. For instance, they would lose the assistance if they refuse two or three times to take up jobs introduced to them by relevant government agencies.
Despite these efforts to monitor eligibility and promote employment among recipients, reluctance from the low-income and poor households to exit from the dibao coverage continues to prevail across the country. Most academics and policy-makers attribute this phenomenon to the supplementary benefits such as medical financial assistance (MFA), housing assistance (HA) and educational assistance (EA) provided automatically to dibao recipients. If a recipient household loses the dibao benefit, it will lose all these related subsidies which are more important than the dibao benefit itself for many low-income households. Others regarded it to be caused by the unconditional nature of dibao, e.g. with no limits on either the age or employability of claimants or the length of benefits. For this reason, some academics suggested to put in place some kind of conditionality. Persistent problems in calculating or monitoring the income of a claiming or recipient household also create loopholes for fraud and misuse of benefits 27 . Finally, the absence of universally accessible basic social services such as education and health services causes this “welfare dependency” or reluctance from the recipients to move into jobs. In other words, inadequate social protection measures rather than high benefit levels have created work disincentives in China. For this, the tied benefits such as medical and education assistance currently available for dibao recipients should be turned into universal access to basic social services available for all citizens.
It is commonly agreed that promoting employment or self-employment in the public service sector is the most viable option to support labor market insertion of the dibao recipients in the current context of China. Opportunities to employ this category of the population, mostly unskilled and approaching 50 years of age, in the open and highly competitive labor market are generally very limited. For this purpose, government should take measures to strengthen vocational and technical training, entrepreneurship training to address the needs of the dibao recipients who are mostly lowskilled workers. It is recognized that there is considerable space for the government to create jobs in the service sector particularly urban community services such as elderly and child care services, and housework services, presently underdeveloped but increasingly demanded. Moreover, the practice of individualized services for job search support, provided by social workers rather than civil affairs administrators, should be widely promoted.
4.4 Poverty among old people and children
Finally, poverty among the elderly and children is
still a significant phenomenon. In 2010 China’s population aged 60 and over reached 177 million or 13.26% of the total population, of which roughly about 100 million lived in the countryside and 70 million in the cities. Among them, less than 100 million received pensions in 2010 (63 million from urban employee schemes, 28 million from the new rural pensions, and 4.6 million from the pension schemes for government and public institutions). Prior to the implementation of the pension schemes for urban residents and rural population in 2010, only about one third of old people received old-age pensions, mostly those who retired from the formal sector. While coverage was extended to the informal and rural population in 2010, their pension benefits are very low, mostly falling between 55 to 60 Yuan per month, resulting in a large proportion of the elderly population who had to rely on social assistance for a living. In 2010, nationally around 20 million old people lived on dibao benefits, including respectively 3.39 million urban and 16 million rural elderly28.
In fact, the proportion of the old population covered by the dibao underestimates the magnitude of the elderly poverty. In most places, old people tend to be systematically excluded from eligibility for dibao due to the integration of family obligations into social assistance. Based on the household as the benefit receiving unit, social assistance in China functions to substitute family support, which is identified as the main source of support for individuals in need. The general practice is that if old people have adult children, either living separately or under the same roof, the
incomes of children would be taken into account in measuring the incomes of their parent household. They are eligible for dibao only if their children are proven through a means test to be economically unable to support them. As current old people tend to have more than one adult child, it is possible for them to have at least one child who has the financial ability to support them. There are also cases that adult children are reluctant to be means-tested even though providing the support to their elderly dependant is a financial burden.
This would lead to the denial of the elderly for social assistance. This practice particularly disfavors the rural elderly, who are mostly uninsured but tend to have more children for sources of family support. It is expected that the
rapid population aging trends in China in the coming decades 29 , the increasing mobility of family, the on-going social transformation, and the“4-2-1” family structure resulting from the one child policy will substantially affect the family support pattern in the future.
Recently, some localities have circumvented the eligibility criteria to dibao based on family and means-testing support by separating the household registration of the elderly from that of their children and thus enabling them to apply for dibao without considering their adult children’incomes. Many provinces established categorical social assistance or social pension schemes where the dibao benefits are paid to old people and people with disabilities on an individual basis instead of the household as the receiving unit.
In terms of child poverty, one prominent feature in the recipient profile of dibao is that children accounted for 27% of the urban households recipients and 13% of rural ones in 2009, showing that a considerable number of children live on subsistence benefits across the country 30 . It is also recognized that risks of children to fall into poverty and get deprived from basic rights to education, health and protection have increased dramatically in China over the past decades. Apart from orphans and children with disabilities who have been the main targets of public services, emerging problems such as vulnerability of leftbehind children in the countryside and migrant children in cities, child trafficking, street children and child labor have become a major concern of both the government and the general public. Most of these problems bear directly on poverty.
Despite this, child poverty has been a nationally neglected phenomenon in government social policies including dibao. This is partly because policy makers tend to have a persistent belief in the natural and legal role of the family in providing for its members and they are concerned that if government undertakes welfare responsibilities, it may erode the welfare function of the family to support their children and elderly. Another concern advanced by the government is the financial affordability. Currently, in most places, benefits levels of dibao vary based mainly on the household size, with children, people with disabilities, and old people being given a slightly
higher rate than other members. Financial support for children and other dependents beyond those living in families currently covered by dibao is expected to be borne primarily by the family resources. This approach is reflected in the design of the dibao which features the family obligation to support its dependants - old people and children are eligible for social assistance only when they cannot avail the support of their family members.
There have been proposals to implement universal benefit programs to children. One option was that eligibility for social assistance should be relaxed to cover marginal poor families with children such as single-parent and low-income households. In more well-off regions, this can lead to the implementation of universal benefits for all children and be extended to all provinces in the long term, which is regarded by both policy makers and academics in China as necessary but currently unaffordable for most localities. Another measure is that the current benefit level of the
dibao should be raised for children to take into account their needs for health, nutrition, education, and other necessities commonly regarded as
5. Conclusion
Policy making and implementation in China typifies the Chinese approach to delivering social protection programs. In the early decades, the development of the social security system was mainly to resolve the socially threatening consequences of restructuring SOEs (Chow & Xu, 2001). Issues of social stability played the most important role in shaping China’s post-reform social security system. With the shift of China’s developmental priorities from predominantly economic growth to social development, the central government has taken an increasing role and responsibility for the funding of rural social programs through central transfers. Meanwhile,
local governments are also becoming less reluctant to spend money on social programs.
In the course of policy implementation, the governemnt has experimented first and adjusted later based on a learning-by-doing approach and advices from international organizations particularly the World Bank. The role of the central government has been limited for the most part to establishing broad guiding principles, while local governments are encouraged to experiment with different solutions or models based on local circumstances and financial capacity (Leung 2003,2006).
It has proven that the role of the central government in financing social programs is the most important factor in the establishment of an effective social security system. Although the establishment of a social security system has long figured on the agenda of the central government since the mid-1980s, due to the practice of fiscal and welfare decentralization, most of the responsibility for financing social programs was transferred to local governments – a factor which has contributed greatly to the absence of social protection programs in China. Indeed, overreliance on local governments for financing social protection measures for the rural population has not only left vast unmet needs in the poor areas, but has increased regional and rural-urban disparity in social and economic development. The financing of rural social programs, with the counties assuming the major financing responsibility, means that there is an absence of transfers from urban to rural areas. This may make the establishment of rural social protection benefits almost an impossible task in less developed regions.
With the shift of China’s developmental priorities from predominantly economic growth to social development, the central government has taken an increasing role and responsibility for funding the rural social programs through central transfers. This is a good indication of progress. Meanwhile, local governments are also becoming less reluctant to spend money on social programs.
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