China needs a Safety Net

by Laura Ehrenberg-Chesler on March 27, 2014

in Economic Indicators,Foreign Markets

On the “WSJ Blog” post supplied by Dow Jones yesterday, there was a fascinating article about China and it’s need for a social “safety net”. The article highlights the reasons Chinese households hate to consume: pension provisions are scant, and the lack of a decent insurance system causes medical costs to weigh heavily on the sick. Stephen Roach, former investment banker who is now at Yale University, as well as an advisor to the Chinese government, explains it this way: “They know me as the guy who always pounds on this safety-net issue,” he said, adding that he thinks the government takes the idea seriously. A framework for reforms outlined in November during a once-in-a-decade meeting of top party leaders represents a significant step in the right direction, he said. Despite its socialist ideology, China’s progress toward a comprehensive system of medical care and pensions has been grindingly slow. In the days of central planning, most workers were provided with some basic

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benefits through their danwei, or work unit, including housing, medical treatment and pensions. As these services have been privatized and the number of employees working for the state has shrunk, it has become easier to fall through the cracks. The country rolled out a nearly universal health-care system in 2009, covering 95% of the population. But the 850 billion yuan ($137 billion) over three years allocated to fund it amounts to a miserly $30 per person per year, Mr. Roach calculates. With huge out-of-pocket co-pays, an illness or accident can still cripple a family’s finances. Pension schemes are also far from generous, with many retirees scraping by on 100

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yuan to 500 yuan a month. Perhaps most egregiously, benefits aren’t portable, so rural migrants who move to cities to work must leave their children behind if they want them to attend school. All this adds up to a bleak situation for Chinese households. Despite years of rapid economic progress, they still have to live with exactly the kind of Dickensian insecurity socialism was supposed to erase. It is hard to deny that China would be a better place if the government managed to fix this irony. And if it helps rebalance the global economy,

all the better.

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