China’s pension problem may be even worse than we previously thought. The country’s pension systems were already facing high debts and low annual returns, but in the past year, growth in urban pension funds has slowed by an alarming 71 percent, and many areas have already resorted to raiding the future retirement funds of current workers to pay for the pensions of the currently retired. This comes despite the fact that many private companies contribute 20 percent of their employees’ wages to the funds while workers get only a fraction of that in benefits when they retire. And as Forbes reports, there isn’t much hope that things will improve any time soon:
One way to fill the hole would be to find more contributors, but that might be challenging. Growth of China’s urban pension funds has slowed by more than 70% in 2012, according to the report, which says the rate declined by more than 500% in some areas. This is not good news for the aging China, whose workforce is dwindling rapidly. In 2012, its working-age population shrank by 3.45 million people and the Chinese population aged 65 or older will double by 2030. There will be fewer than 1.6 workers for every retiree by 2050, Paulson Institute’s Robert Pozen once estimated.
Even smaller changes to the structure of the system will prove politically difficult:
For years, policymakers have advocated a national management system to tackle the pension problem. Currently, the urban pension funds are overseen by local governments, whose pension reserves differ dramatically. In 2012, the province of Guangdong has 387.9 billion yuan under management while Tibet has only 2.4 billion yuan. Under a national scheme, it would be possible to transfer the surplus to areas that are in desperate need of money. But the reform has been stalled partly because of local governments’ fear over losing their say within the pension system.
For all the deserved concern about America’s pensions, the situation in China may end up being even worse, particularly if economic growth slows down a bit from the boom years of the past few decades. The one-child policy and the resulting demographic decline are creating some serious problems for China.