Urbanization and Social Welfare in China (review)

In China, economic growth has been accompanied by urbanization. Many factors are responsible for this, including the increasing structural shift from a rural- to an urban-based economy, employment in manufacturing and services, foreign investment and trade, the privatization of state-owned enterprises, rural-to-urban migration, and the ways in which domestic spending is allocated.¹ Although the rapid progress of China's urbanization is without precedent, economists suggest that China lags behind the world standard in urbanization, and this is incompatible with its rate of economic growth. The fear that a slowdown in urbanization could impede China's continuing economic development has led to increased government attention. The prereform (pre-1978) socialist welfare system having been identified as a major barrier to urbanization and economic development, the Chinese government has conducted various welfare reforms in order to address this challenge. A central question for China, therefore, is how the social welfare system should be changed to meet the needs of an urbanized society. More precisely, what aspects of this system can be interpreted as a barrier to urbanization in China and should thus be reformed, and what aspects of the system can be understood as the consequence of the evolving economic process?

Urbanization and Social Welfare in China catches China at the most critical moment in its urbanization process and presents a comprehensive view of China's new welfare system and the implications of this system for urbanization. The editors of this book have compiled seventeen essays written primarily by economists. These contributing authors, from their macro-economic perspectives, have paid enormous attention to issues like urban poverty, income inequality, and disparities in health care, housing, and the provision of services. They adopt a shared ideological view that the ongoing urbanization process needs to harmonize the well-being of the population and market-dominated economic development.

The book begins with an introduction to the new social welfare system in China, including the social-security pension system, health-care insurance, and housing. The old social welfare system, which was established incrementally following the Communist takeover in 1949, was a structuralist approach that blended production and welfare into a single central economic and social-planning system.² Unfortunately, it was founded on the separate treatment of rural and urban populations. That is, the urban populace, due to their strong ties with state-owned enterprises, enjoyed full state benefits while rural people had to depend on a collective system that did not have much state support. Without a reform of this structuralist approach to welfare, urbanization simply would become a nightmare for Chinese government planners by adding millions of people to its welfare rolls. Since China began to adopt the new welfare system in the mid 1980s, mainly due to the necessity of separating welfare functions from the employment system and to the increase in the labor force in the non-state sector, cities in China have followed moderate policies toward newly urbanized rural migrants. They are allowed to stay in the cities, but they are treated differently from persons who are within the hukou system in terms of, for example, housing, health care, and education.³ The new social welfare system in China nevertheless continues to offer special privileges to already established urban residents.

As for China's social-security pension system, Martin Feldstein (chapter 1) describes how China has a mixed system, including a defined benefit financed by a payroll tax, and a defined contribution system, with contributions made by both employers and employees. The defined benefit, a flat-rate benefit, is only for those who have worked a full forty years, and access to this pension benefit is further restricted to urban residents. As Feldstein puts it, "the current system focuses on a limited fraction of the population, primarily urban workers in state-owned enterprises" (p. 21).

Regarding the health care system, Robert W. Fogel (chapter 2) predicts that urbanization will lead...