The United States is not the only major power with a looming pension crisis. In China, an economic slowdown and long-term demographic trends are threatening the pensions of workers in the industrial northeast. The Wall Street Journal:
China’s hopes of growing rich before it grows old are dimming. The burden of supporting each person over 65 is now shared by more than seven workers. But that will drop to just two people in 35 years, according to United Nations data, or even fewer than that, the World Bank says. […]
The Chinese Academy of Social Sciences, the country’s chief think tank, predicts China’s pension surplus will turn into a deficit by 2023. By 2050, it predicts, the cumulative deficit will be $118 trillion barring significant policy changes.
With pension funds administered locally, the pain will come quicker to the northeast. While prosperous southern Guangdong province has more than 50 months’ worth of pension payout in its fund, northeastern Heilongjiang has a single month, the academy said in a July report.
China’s pension woes have many causes and no quick fixes. The demographic factor is crucial: although Beijing recently relaxed the one-child policy that had been in place for 35 years, low birthrates mean that in the decades to come, China’s increasing pension burden will fall on a shrinking work force. The crisis is also exacerbated by China’s paltry selection of reliable investment options, a phenomenon also causing a series of turbulent asset bubbles in China.
Beyond the nationwide trends, the pension crisis has a regional dimension that indicates cracks in China’s social cohesion. China’s decentralized, patchwork pension system creates great disparity between workers’ retirement options. Many farmers and rural workers have no pensions at all, or lack the means to pay into them. Industrial workers for state-owned enterprises in China’s northeastern rustbelt have typically fared better, but that is changing as unprofitable steel mills and rail companies come up short on their obligations. Meanwhile, wealthier provinces balk at the idea of pooling provincial funds into a less risky national pool.
Beijing’s pension problems are one more manifestation of the economic troubles China is likely to face in the years to come. The government has proposed some minor reforms to pensions, but the system may need a full overhaul if Beijing means to follow through on its promises. China has promised its citizens economic growth and rising living standards, and so far it has been able to deliver—but sooner or later, the bill will come due.