As of Sept. 1, all employers in China must contribute to benefits for their employees, to support their pensions, medical care, maternity leave and more.
That should come as good news to many ordinary Chinese, given how threadbare China’s social safety net has been. But rather than celebrating, many in China have reacted with worry and frustration.
Small business owners have said that their labor costs will skyrocket. Workers have speculated that their bosses will lay them off or lower their salaries. Economists have warned that the policy could push more people into the gig economy, possibly lowering the formal employment rate and stripping workers of protections.
“If they force us to pay, we’ll have to close up shop and go home,” said Yan Xuejiao, whose family runs a rice noodle shop in Beijing.
“Especially the way business is going this year, ask around — which business owner is able?” she continued, gesturing at the empty restaurants, hers included, on the downtown street. “We’re all about to give up our leases and quit.”
That the requirement has been met with such anxiety shows the challenges the Chinese government faces in bolstering its weak social safety net. On the one hand, experts agree that China urgently needs to replenish its state pension fund, which experts have said may run out by 2035, and to ease the costs of housing, education and health care. That would help Chinese families feel less pressure to save for a rainy day and spend more, a key goal for the government in boosting a slowing economy.
But the economic downturn also means that many small and medium-sized businesses are already struggling to stay afloat — even before paying for social insurance, which under Chinese law is funded by contributions from employers and employees. Some young people have also opted out of paying for the benefits, preferring to pocket more money for their daily needs.
If Beijing follows through, the price tag could be steep. Analysts at Société Générale estimated that the rule could increase costs to employers and workers by about 1 percent of China’s gross domestic product. Like many of their American counterparts, many younger Chinese are also skeptical that they will ever get to see the promised welfare anyway. With fewer babies being born and a shrinking pool of future workers to pay into the pension system, they worry that the funds will run out before they retire.
“If people like us have to keep paying for another 20 years — will I even live 20 more years?” said Ms. Yan, who is in her 40s. “Even if I live to see that point, can I be sure I’ll get this money?”
Chinese law has long required that employers and employees each pay into a social security fund. The exact share differs by region, but generally amounts to about 10 percent of the paycheck from the worker, and about 25 percent from the employer. (Part-time or gig workers without formal labor contracts are exempt.)
But the law was loosely enforced, and many employers either underpaid, skipped the payments altogether or signed informal agreements with their employees to give them cash instead. A survey last year of more than 6,000 Chinese companies found that less than 30 percent fully complied with social insurance requirements.
Last month, the Supreme People’s Court declared those informal agreements void, and said it would uphold claims by workers who sued for unpaid contributions.
The goal was to protect workers from being pressured into unfair labor contracts, officials said at a news briefing. The move would also “actively respond to the problem of population aging,” said Chen Yifang, a judge.
But among workers, the reaction was mixed.
While some applauded the decision, saying they wanted guarantees for their future, others said it was more urgent to have more money in their own hands now.
ZZ Zeng, a 35-year-old employee at a Korean restaurant near Ms. Yan’s noodle shop, said he expected his take-home salary of 6,000 renminbi, or about $840, a month to drop by at least $140 once both he and his boss started paying into the fund. He might have to dip into his savings to pay for his $700-a-month mortgage, he said.
He would prefer to remain uninsured, he said: “Money in hand is so much more satisfying.” The promise of future benefits was unappealing, he added. “That’s too far in the future. Better to focus on the present.”
Other workers said they expected their bosses to hire more day laborers, or cut their salaries in order to cope. That’s exactly what Hu Yang, a hair salon owner in Beijing, plans to do.
Mr. Hu said that he would count the employer’s required contribution as part of his employees’ total benefits, and take it out of their paychecks.
Otherwise, he said, he would have to shoulder thousands of dollars more in costs each month, which he could not afford. “How much can you earn running a salon?” he said. “It’s not just our industry. Restaurants, anywhere that hires ordinary workers — it’s all the same.”
China’s social security is funded almost exclusively by contributions from employers and employees, unlike in other countries, where general tax revenue also contributes. That means that the required contribution rates from employers and employees are much higher than in many other countries. In the United States, for example, the combined tax for Social Security and Medicare is less than 8 percent each for employers and employees; in Japan, employers and employees contribute around 14 percent each to pensions and medical insurance.
The heavy dependence on employers is a legacy of China’s planned economy days, when state-owned enterprises were responsible for most workers’ welfare.
The government should gradually reduce those rates, said Lu Quan, a professor of social security at Renmin University in Beijing. That, combined with more strictly ensuring that employers actually paid into the funds, would allow the government to increase pensions without overly burdening business owners.
“The prerequisite for mandatory participation in a system is that it be a good system,” he said. “So we still need to lower the payment rates. These are two sides of the same coin.”
But the authorities also need to address young people’s mistrust in the system, and reassure them that they really will reap the benefits, said Zongyuan Zoe Liu, a fellow for China studies at the Council on Foreign Relations in New York. That mistrust has been compounded by a history of misappropriation of pension funds by local governments, as well as earnings that have not risen much.
“I think it’s just pure math. If people realize that their wages are not going to grow, how can they count on that their pension contribution paid in today is going to be distributed decades later?” Ms. Liu said.
There are also more deep-rooted issues. Many young Chinese are wary of government overreach after the strict controls the authorities imposed during the pandemic. They see the pension system, which gives more benefits to urban, public sector retirees than to those who worked in private companies or in rural areas, as deeply unfair, Ms. Liu said.
“There is no easy solution,” she said. “It’s not that the government can grow the economy, and this problem can be solved.”
Siyi Zhao contributed research.
Vivian Wang is a China correspondent based in Beijing, where she writes about how the country’s global rise and ambitions are shaping the daily lives of its people.
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