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256 29 Establish a Social Security System with Chinese Characteristics1 September 8, 1994 The issue of reforming the social security system is extremely important. The Party Central Committee and the State Council have affirmed that the focus of next year’s reforms will be [establishing] a modern enterprise system—this is fundamental. However, SOE reform must be supported by a social security system . Without such a system, we can’t speak of enterprise reform. Therefore we should raise the study of the social security question to a higher level. In establishing a socialist security system with Chinese characteristics, we need to take three distinctive features of China into consideration. First, China is a large country with a large population, and it is also a large country that is very poor. An exceptionally large proportion of government and SOE employees live on “imperial rations,”2 and there are a great many retired employees. Dealing with this problem is much more difficult than it is in other countries, and methods used in foreign countries might not work in China. Second, current SOE productivity is quite low, we’re failing to collect fiscal revenues, and we didn’t have large tax revenues to begin with. Right now we’re still owed several tens of billions RMB in back taxes. Fiscal revenues as a percentage of GDP might be the lowest in the world, yet we need money everywhere, and the government can’t afford too much. We also can’t use the high-benefits policies of some Western countries. Third, for a long time China had no foundation for an insurance system, and it also has many farmers. In the past, everyone ate from the same “big pot,” and we relied mainly on the fiscal departments and banks to produce the money. Now we want to shift the burden primarily onto society. The fiscal departments don’t have too much money, and if we shift it onto enterprises or individuals, they won’t be able to cope either. It’s impossible to add a lot of burdens and still guarantee that life will be very good. In view of these characteristics, we must pay attention to the following three points when establishing a social security system. First, the standard of security 1. This is the main part of remarks made by Zhu Rongji after listening to a study team’s work report on reform of the social security system. 2. See chapter 19, note 7. Establish a Social Security System with Chinese Characteristics 257 cannot be too high: we can ensure only a basic livelihood. A basic standard of living means a very low standard. Second, eating from the same “big pot” absolutely won’t work. I’m still in favor of making individual accounts the largest proportion. With individual accounts, individuals will be moved to pay up, and enterprises to pay insurance costs. Workers can supervise enterprises in making payments. Without individual accounts, a lot of money won’t be collected . Third, the proportion of socially pooled funds shouldn’t be too high. I’m inclined to put part of the society-wide pool into individual accounts. We have to consider the effects of several thousand years of individual economy in China, the long-term lack of awareness of a legal system and insurance, the inability to get used to many things—if everything were to suddenly be put in a society-wide pool, we wouldn’t be able to cope. Under the pension insurance in the existing society-wide pool, individual payments also go into the pool, so they become meaningless. We can’t just copy foreign ways exactly. Individual payments are made by individuals and their ownership belongs to individuals, but they are socially mandated and cannot be withdrawn at will before retirement. Individuals must make payments that are then pooled for use, but the money belongs to individuals, and so does the interest. It’s just that ownership rights and usage rights are different. Unemployment insurance should be used primarily for unemployment relief for workers, to guarantee a basic standard of living for the unemployed. Their management fees should be minimized to the greatest extent possible, and we should strengthen oversight over them. Funding for reemployment training should come from other financing channels, and should not be taken out of unemployment insurance funds. At the moment most of the unemployment relief funds are being used for reemployment training—the effectiveness of such training is doubtful, and this practice needs...


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