The Reform and Development of Social Security System in China Zou Hailin



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英国第五次人权网络研讨会 The fifth network forum on human rights in UK

The Reform and Development of Social Security System in China

Zou Hailin

Article 9 of the International Covenant on Economic, Social and Cultural Rights provides: ‘The States Parties to the present Covenant recognize the right of everyone to social security, including social insurance.’ 1The fourth paragraph of article 14 of the Constitution of the People’s Republic of China provides: ‘the state develops adequate social security system suitable for its economic development.’ The Article  45  of the Constitution of the People’s Republic of China provides: ‘Citizens  of the People's Republic of China have the  right    to    material assistance from the state and society when they are  old,    ill   or   disabled.   The  state  develops   social  insurance,  social   relief  and  medical  and health services that are required for citizens  to enjoy this right. The    state  and  society  ensure  the  livelihood of disabled  members   of  the  armed   forces,   provide   pensions   to   the   families   of  martyrs   and   give  preferential treatment to the families of military  personnel.The    state   and   society   help  make  arrangements  for  the  work,   livelihood  and education of the blind, deaf-mutes and other handicapped  citizens. ’ The enjoyment of the right to social security is the inherent right of each citizen, the state shall create basic conditions necessary for access to the social security and are obliged to assure them to have access to the social security permitted by economic and social resources in acountry.


1. Basic Framework of China's Social Security System

In China, the social security system consists of social insurance, social relief, social welfare, society special care, basic living guarantee of enterprises' laid-off workers and reemployment system, etc.. 2 Social insurance is the core of China's social security system, including the endowment insurance, unemployment insurance, medical insurance, birth insurance and job-related injury insurance. The basic life guarantee of laid- off workers of state-owned enterprises and reemployment system provides safeguards to resolve historical problems.

Generally speaking, China's social security system has already had a history of more than 50 years, and its development may be divided into following three stages.
(1) Embryonic form of the social security system

The social security system of China was established at the beginning of the 1950’s. The Government Administration Council of former People's Central Government issued the Labor Insurance Regulations of the People's Republic of China in February of 1951, beginning to set up the social security system for the workers of urban enterprise with characteristic of " low salary, more employment, high subsidies, high welfare". After this, the endowment insurance, medical insurance and treatment of the wounded or disabled are stipulated by the country, and the cost for labor insurance is beard by enterprises and government finance. During this period, China has set up the public relief system for the poor population in urban and rural areas. For example, the system of ‘the household enjoying the 5 guarantees’, which means to offer five kinds of life and material care (food, clothes, house, medicine, funeral) for the senior citizens who have no definite obligator of supporting, no labor ability and no source of income.


2. Reform of China's social security system

Since the 1980’s, China has begun to reform the social security system reform which has lasted for more than 30 years. By the middle period of 1990s, the reform of the social security system came to an end. At this stage, the reform of China's social security system was still comparatively comprehensive. Article 70 of Labor Law of the People's Republic of China stipulates that ‘ The country will develop the social insurance, set up the system of social insurance, set up social insurance fund, make the laborers accessible to help and compensation in case of old, ill, job related injures, unemployment or giving birth, etc.." Article 71 stipulates that ‘The social insurance level should be in conformity with social economy development level and ability to society bearing.’ Reform of the social insurances such as endowment insurance, unemployment insurance, and medical insurance have been started in most areas (provinces, autonomous regions and municipalities directly under the Central Government) of China. The reform of endowment insurance system has made great progress, and the reform of medical insurance system has been started in an all-round way. The urban social security system has been improved, and the integration of social insurance has been realized basically.


In 1993, China began to launch the reform on urban social relief system in a large scale and tried to establish the minimum living security system. In the rural areas, the system of ‘five guarantees ‘ was pursued further. The State Council issued ’Regulations on the Five Guarantees in Rural Areas’ in January of 1994, providing that the civil affairs department of people's government at county level shall offer five kinds of life and material care (food, clothes, house, medicine, funeral) for the senior citizens, disabled people and minors, people who have no definite obligator of supporting, no labor ability and no source of income.

In this period, the basic objective of China's social security system reform is to set up the social security system that is independent of enterprises and administration departments and is regulated, with multi-channel funds and socialized administration services. Its main characteristic is: basic assuring, extensive covering, multi-level and gradual integration. That means: in conformity with economic development level, the compulsory setting up of the basic guarantee aims to meet people's basic life's needs; the social security scheme will gradually covers all citizens; in addition to the basic insurances, the country promotes the development of others forms of insurances, strives to form the multi-level social security system; Through the reform and development, implement the nationwide integrated social security system progressively.


3. The Basic Formation of the Social Security System

(1) Since the middle period of 1990s, the social security system of China has made great progress after the reform, and the social security system has taken shape basically.

At present, the basic policy of social insurance system has already been made, and the State Council has issued administrative regulations or rules related to basic endowment insurance, unemployment insurance, basic medical insurance, job-related injury insurance, birth insurance, etc. in succession, and the social insurance has already covered most urban workers and retired personnel, and migration workers in some regions are also covered by the social insurance scheme. In 2001, Chinese Government began to launch the comprehensive pilot project of perfecting the urban social security system in Liaoning Province.
By 1999, all cities and counties that have organic towns in China have set up the minimum living security system, and the State Council issued Regulations of Minimum Living Guarantee for Urban Population, offering the most basic living guarantee to all residents in the city. The minimum living guarantee fund of the urbanite is included in the financial budget by the local people's government. Local government determines the minimum living guarantee standard according to local urbanite’s basic life essential expenses. Families with per capita income lower than standard minimum living guarantee can apply for the subsidies. The minimum living security system has been set up in some rural areas correspondingly too. In 2001, the number of people enjoying the urban minimum living guarantee and relieving in the whole country was up to 11,707,000. The number of people of enjoying urban minimum living guarantee was 20,530,000 in 2002, and the number of people of enjoying rural minimum living guarantee was 4,040,000. The number is 22,350,000 and 3,950,000 respectively in 2003.

Meanwhile, in order to strengthen the unified planning of social security system and management, supervision of the social security fund, China has carried out a series of reforms on the management system of the social security. The social insurance formerly managed by several administrative departments separately is now managed by labor and social security administrative departments, and the labor and social security administrative departments at all levels have also established corresponding social insurance handling mechanism to undertake the managements of the concrete affairs of social insurance. The social insurance affairs undertaken by enterprises in the past have been transferred to the social organization progressively, namely social insurance treatment implements socialized granty, and social insurance targets are managed in the community. China has also strengthened the administrative management and supervision on the use of the social insurance fund. The social insurance fund is listed in the special account of the government finance, managed according to the principle of "separation management for revenue and expenditure ", and fund is allocated for its specified purpose. The labor and administrative departments of social security at all levels have set up social insurance fund supervision organization specially, responsible for the inspect, supervision of raising, management and payment of the social insurance fund, and investigating and punishing the unlawful practices.


(2) Endowment Insurance of China

China implemented the single basic endowment insurance system to the enterprise workers before 1990s. The basic pension is also called retire pay or retire pension, and it is a kind of main endowment insurance treatment. After the workers are old or lose labor ability, according to their contribution to society and qualification and retire requirements for enjoying endowment insurance, the country pay insurance treatment to retired employees by monetary form monthly and in lump-sum, mainly used for ensuring worker's basic living needs after retiring.


In 1984, the endowment insurance system reform was carried out all over China. In 1986, China began to pursue the pension social pool of the workers of state-owned enterprises. In 1991, the State Council issued ‘Decision on System Reform for Enterprise's Workers Basic Endowment Insurance ‘, requiring ‘ to set up the system combing basic endowment insurance, enterprise's supplementary endowment insurance and worker's individual endowment insurance progressively with the development of economy ‘, and stipulating that the endowment insurance implements the social pool policy and the expenses are bared by the government, enterprises and workers jointly. From then on, China has set up the multi-level endowment insurance system progressively. In1993, the Third Plenary Session of the 14th Party Central Committee of Communist Party of China recommended the scheme that " the combination of social pool and personal account for the endowment insurance for selection by local authorities. In 1997, the State Council Decision on Establishing Integrated Enterprise Workers' Basic Endowment Insurance System states clearly that the people's governments at all levels should include social insurance development within the national economy and social development plan in the local area, carry out the principle that the basic endowment insurance can only ensure retired personnel's basic life. In order to improve the life of the retired personnel with economy and social development constantly, reflect the principle of distribution according to labor and differences of regional development level and enterprises’ economic benefits, every area and relevant departments should develop supplementary the endowment insurance of enterprises under the guidance of state policies, give play to the supplementary function of the commercial insurance at the same time. This decision has advanced the process of China’s establishment for the nationwide unified basic endowment insurance system for urban enterprises' workers.
The Chinese endowment insurance is made up of three parts. The first part is the basic endowment insurance, the second part is enterprises’ supplementary endowment insurance, and the third part is the individual savings endowment insurance. The basic endowment insurance is also called the national basic endowment insurance, and it is a kind of basic endowment insurance system to guarantee basic living needs of workers after retiring and is implemented by force by the government.
The basic endowment insurance system of China adopts the mode of combing social pool and personal account. The basic endowment insurance covers the workers of all kinds of enterprises in the cities and towns, and all enterprises and workers in the cities and towns must perform duty of paying basic endowment insurance premium. Article 72 of Labor Law of the People's Republic of China stipulates that ‘the source of social insurance fund shall be identified according to the type of the insurance, and social pool shall be implemented progressively. Employing unit and laborer must participate in social insurance and pay the social insurance premium in accordance with the law.’ At present, the proportion of fee paid by enterprises is about 20% of the payrolls, the proportion by individual is 8% 3of one's own salary. One part of endowment insurance premium paid by enterprise is for setting up pool funds, another part is put under the personal account; The basic endowment insurance premium paid by individual is charged to the personal account. The pension in personal account can be inherited. To the workers who are working before the new system is implemented or who are retired after the implementation of the new system, additional transitional pension shall be paid. Under the system, the collection of basic endowment insurance premium still adopts the traditional method, which means the basic endowment insurance premium is paid by the country, enterprises and individuals jointly, and the basic endowment insurance fund implements the principle of mutual help in the society. But the idea of the structural granty is adopted in regard to the granty of basic pension, with emphasis on encouraging factors to personal account pension and difference of contributions.
The workers who participated in basic endowment insurance in China was 86,710,000 at the end of 1997. In 1998, 84,758,000 workers in enterprises have participated in the basic pension insurance policy in the whole country, accounting for 80.5% of total; Retired personnel of 27,273,000 have participated in the social pool of the endowment insurance, accounting for 98.5% of retired number of people of enterprises. The national basic endowment insurance fund gains 145,900 million Yuan, and the expenditure is 151,160 million Yuan; 3 billion yuan is paid additionally for the formerly unpaid pensions altogether and all the unpaid pensions in Beijing , Shanghai , Fujian , Guangxi , Zhejiang , Ningxia , Jiangxi have been cleared. At the end of 2000, 104,480,000 workers and 31,700,000 retired personnels in the whole country participated in the basic pension insurance policy. At the end of 2001, 108,020,000 workers and 33,810,000 retired personnels participated in the basic endowment insurance in the whole country. Most retired personnel receive basic pension in full amount on time, and an additional 1,400 million yuan of pension over the years has been paid at the same time. The total income of national basic endowment insurance fund for the whole year is 248,900 million yuan (including the collection income, central and local governments’ financial subsidies) and the total expenditure is 232,100 million yuan. Till the end of 2002, 111,280,000 workers and 36,080,000 retired people have participated in the basic endowment insurance, and 90,900,000 workers and 33,330,000 retired people are from enterprises. Till the end of 2003, the number of workers who have participated in basic endowment insurance is 154,900,000.

In China, the guarantee level of the basic endowment insurance improves progressively. The average monthly pension of the retired personnel of enterprises was 129 yuan in 1990, 430 yuan in 1997, 556 yuan in 2001 and 579 yuan in 2003.

In order to reduce burden of the enterprise's involvement into social affairs and to guarante by system that the basic pension is granted in full amount on time, and socialized management and services of social security are launched actively in the local areas. In 1996, the socialized granting rate of basic pension to retired personnel of enterprises was 12%; in 2001, the rate was 98%; till the end of June of 2002, the rate was enhanced to 99.4%; till the end of 2003, the rate was 99.5% nationwide, and the rate in 21 provincial cities reaches 100%.

In addition, the original endowment insurance system is still adopted for the workers and retired personnel of institutions, state organs.

In 1991, some rural areas in China began to carry out the pilot project of basic endowment insurance system. With the basic principal of " individual pay as main source, collective subsidy as supplementary, and with government finance supporting”, the rural endowment insurance system adopts the mode of fund accumulation of personal account. The rural social endowment insurance is a system to ensure the basic life of old people of the whole country, and is an important social policy of the government. The rural social basic endowment insurance system should be carried out with consideration of reality of the countryside of China, with the aim of guarantee the basic life of old people. Social endowment insurance of peasant is a basic endowment insurance policy established in the countryside by the government, and its standard is low and covering range is wide. With village as a unit, the rural endowment insurance of the people (including workers of township enterprises, private enterprises, self-employed individuals, and the local people who work elsewhere) is organized. For the worker of township enterprises, teachers working at a school run by the local people, cadre of villages and towns, workers, their endowment insurance is organized with townships or enterprises as the unit. A few villages and towns can practice the endowment insurance of the workers of township enterprises first because of economy or the region. The endowment insurance of alien labor service personnel shall be done in its household register site (domicile ) in principle. For example, in 1998, the whole country has 2123 counties (city) and 65% township (town) that have launched the rural social endowment insurance work already, and there are 80,250,000 people in the countryside who have participated in social endowment insurance. The rural social endowment insurance fund gains 3,140 million yuan in the whole year, and the expenditure is 540 million yuan, and balance of that period is 2,600 million yuan, and accumulated balance is 16,620 million yuan at the end of that period.

The endowment insurance in rural areas is managed by government's civil affairs departments. But till February of 2002, the whole country have 24 province, autonomous region and municipality directly under the Central Government that have shifted rural executive function of social insurance to social security department from Ministry of Civil Affairs already, among them, 13 municipalities (Tianjin , Hebei , Shanxi , Heilongjiang , Shandong , Shanghai , Zhejiang , Chongqing , Hunan , Anhui , Jiangsu , Yunnan) have set up the rural social insurance department. 11 municipalities (The Inner Mongol , Jilin , Liaoning , Guangxi , Guangdong , Hainan , Sichuan , Fujian , Guizhou , Gansu , Tibet. Shaanxi , Qinghai , Xinjiang , Ningxia) have not set up the rural social insurance department but have combined the administrative function of rural social insurance with endowment insurance department. Only Henan, Jiangxi and Hubei have reserved the rural insurance affairs within the civil affairs department.


Many problems still existed in China's current basic endowment insurance system, which are mainly as follows:
1. Differences of the endowment insurance in urban and rural area

The urban area and rural area are different from each other with regarding to the management mode, geographical position, economic development levels and employment situation, which causes the government to implement different social basic endowment insurance system, so that the enormous difference between urban and rural areas is developed.


2. Difference of the Endowment Insurance among Different Industries

The endowment insurance of the urban workers is also different because of the different industries, which was reflected by the fact that the urban workers' basic endowment insurance system fails to include in the workers of the government offices and public institutions all the time, and the workers of government offices and public institutions do not receive the guarantee of the basic endowment insurance, which makes urban worker have a difference on the treatment of the endowment insurance because of difference of a job.


3. The personal account of the endowment insurance is in name only

The endowment insurance of China implements the mode that the social pool combines with personal account, but the management of the pool fund and personal account fund is in a mass for a long time, causing the personal account of endowment insurance running empty, and the deficit reached 199 billion yuan, and people are afraid that there is a potential danger of abolition of the new system.


4. The guarantee level of the endowment insurance is low

The purpose of the endowment insurance lies in offering the basic living guarantee for the retired workers, but the guarantee level of the endowment insurance of China is relatively low comparing with the minimum guarantee of living and the civil living standard that is improving day by day. By the end of 2003, the average monthly pension of the basic endowment insurance is only 579 yuan, and the standard is low. In addition, the multi-level endowment insurance mechanism has not been set up, and most enterprises haven’t set up the supplementary endowment insurance (such as annual pension) for its workers.



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