Current and Future Problems of Capital Accumulation in the Chinese Pension System

The decree establishing a uniform system of basic pensions for employees in municipal and private enterprises, published by the State Council on 16 July 1997, reflects the Chinese Government's ultimate choice in favour of a partly private funded scheme to cover future pension needs. This article examines the reasons which led to this choice and asks how easy or otherwise it will be to find the capital to finance it. The authors believe that the partly private scheme is more advantageous than other methods and is right for China. Many issues, however, remain the focus of lively debate. In particular, a realistic coordination of individual and group accumulation is needed in order to avoid shortfalls in capital formation and the dangers of inadequate benefit provision. To safeguard the subsistence needs of former workers in state-owned enterprises, a system of equalization at national level is needed, and problems continue over how future pension insurance funds should best be managed.