The Political Economy of Making and Implementing Social Policy in China (Social Policy and Development Studies in East Asia) 9811650241, 9789811650246

Table of contents :
Contents
List of Figures
List of Tables
1 The Political Economy of Social Policy Reform in China
China’s Economic Hyper-Growth and Inequality
Research Questions
Methodology
What This Book Is About
A Review of the Literature
Major Arguments
Contribution to the Literature
References
2 The Development of Social Policy Reform in China
China’s Welfare System Before the 1980s
The Welfare System in the 1980s and 1990s and Initiation of New Social Programs
Pensions
Health Insurance
Unemployment Insurance
Urban Social Assistance (Dibao)
The Chinese Welfare System Since the Early 2000s
Pensions
Health Insurance
Social Assistance
Achievements of the Recent Round of Social Policy Reforms
Social Insurance
Social Assistance
Fragmentation of China’s Welfare System
The Role of Bureaucrats in China’s Social Policy Reform
References
3 Policy Implementation in the Decentralization Welfare Regime
Decentralized Management
Local Officials’ Motivation Under the Performance Evaluation System
Selective Enforcement Under the Performance Evaluation System
Decentralized Financing
Social Policy Reform Under Decentralized Management and Financing
Policy Reforms Addressing Issues in the Welfare System
Local Policy Experiments
Issues in Local Policy Experimentation
Regional Development
Issues in Regional Development Policy
Conclusions
References
4 Interagency Collaboration in China’s Social Policy Reform
Collective Action Problem in Policy Making and Implementation
Explicit Ex Ante and Ex Post Rules
Small Leading Groups and Interministerial Joint Conferences
The Limitations of Interministerial Conferences and Small Leading Groups
Separating Authority: A Top-down Mechanism to Facilitate Policy Implementation
Bureaucracy’s Authority in Policy Areas
Rural Health Insurance
Incentive Structure of the Government Agency in Managing Health Insurance
Logrolling: A Voluntary Way to Facilitate the Exchange of Support Among Bureaucrats
Conclusions
References
5 Policy Capacity in China’s Social Policy Reform
Increasing the Funding of Social Programs
Policy Capacity in Managing Social Programs
Capacity in Managing Social Insurance Funds
Capacity of Targeting for Social Assistance Programs
Capacity of Policy Evaluating for Social Insurance Reform
The Financial Sustainability of Social Insurance Funds
Improving Capacity with a Reshuffling of Departmental Responsibility
Reforming the Individual Accounts of Health Insurance Fund
Improving Government Capacity by Upgrading Digital Infrastructure
The Endogeneity of Policy Capacity Improvement
Conclusions
References
6 Feedback on Social Policy Reform and Bureaucrats’ Responses
Citizens’ Participation in Social Policy Reforms
Online Political Participation
Workers’ Feedback to Social Policy Reform
Market-Based Alternatives to Social Programs
Feedback from Firms
Bureaucrats’ Responses to Feedback
Talent War and Regional Variations in Welfare Provision
Conclusions
References
7 Accommodating Policies Under “Top-Level” Design: Coordination Between Employment Promotion Policy and Social Policy Reform
The Role of Top-Level Design
Employment Promotion as a Major Policy Target
Employment Promotion Policies
The Tension Between Social Programs and Active Labor Market Policies
Empirical Evidence for the Discord Between Social Policy Reform and Employment Promotion Policy
Duality of Labor Market and Increasing Size of the Informal Sector
Employment Promotion During the Covid-19 Pandemic
Implications on Financial Sustainability of Social Insurance Funds
Conclusions
References
8 “China Model” and Social Policy Reform
Uneven Expansion of Pension Coverage
Shallow Benefit Level of (Resident) Pension
Low Utilization Rate of Health Care
Under-Coverage of Unemployment Insurance and Social Assistance
Future Challenges: Technological Changes, Aging, and China’s Welfare Regime
A New Welfare Regime in the Making?
Social Policy Reform under the “China Model”
References
References
Index

Citation preview

SOCIAL POLICY AND DEVELOPMENT STUDIES IN EAST ASIA

The Political Economy of Making and Implementing Social Policy in China Jiwei Qian

Social Policy and Development Studies in East Asia

Series Editors Joshua Mok, Lingnan University, Hong Kong Jiwei Qian, National University of Singapore, Singapore, Singapore

“Social Policy and Development Studies in East Asia” aims to provide a platform for academics, researchers and policy analysts to contribute their reflections and analysis of how rapid social, economic, cultural, political and even political economy changes would have affected the formulation, implementation and evaluation of social policy responses in handling/managing rapid changes and risk management issues confronting East Asian governments and societies.

More information about this series at http://www.palgrave.com/gp/series/15726

Jiwei Qian

The Political Economy of Making and Implementing Social Policy in China

Jiwei Qian National University of Singapore Singapore, Singapore

Social Policy and Development Studies in East Asia ISBN 978-981-16-5024-6 ISBN 978-981-16-5025-3 (eBook) https://doi.org/10.1007/978-981-16-5025-3 © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: Marina Lohrbach_shutterstock.com This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Contents

1

1

The Political Economy of Social Policy Reform in China

2

The Development of Social Policy Reform in China

23

3

Policy Implementation in the Decentralization Welfare Regime

49

Interagency Collaboration in China’s Social Policy Reform

81

4 5

Policy Capacity in China’s Social Policy Reform

101

6

Feedback on Social Policy Reform and Bureaucrats’ Responses

127

Accommodating Policies Under “Top-Level” Design: Coordination Between Employment Promotion Policy and Social Policy Reform

147

“China Model” and Social Policy Reform

169

7

8

References

183

Index

201

v

List of Figures

Fig. 1.1 Fig. 1.2

Fig. 1.3

Fig. 1.4

Fig. 1.5 Fig. 1.6

Fig. 1.7 Fig. 1.8 Fig. 2.1 Fig. 2.2

The Gini coefficient in China, 1984–2019 Government expenditure on health and social security in China and its share in total fiscal expenditure (%, RMB billion), 2007–2020 a. Pension Coverage and the Size of the Private Sector across 31 Provinces in 2003. b. Pension Coverage and the Size of the Private Sector across 31 Provinces in 2018 The disparity of average pension benefits between retirees in basic employee pensions and residents’ pensions (monthly benefit, RMB), 2013–2018 The share of self-treatment and no treatment in health-seeking, 1993–2015 The number of beneficiaries as a share of registered unemployed workers and of enrollees in unemployment insurance (%), 1999–2020 Social assistance recipients (Dibao) (millions), 2019 Q4–2020 Q4 Temporary assistance recipients (millions), 2019 Q4–2020 Q4 The enrollment rate of pension and health insurance, 1989–2001 The average benefit level of urban basic employee pensions, 2005–2018 (RMB)

2

4

6

7 8

9 10 10 27 30

vii

viii

LIST OF FIGURES

Fig. 2.3 Fig. 2.4 Fig. 2.5

Fig. 2.6 Fig. 2.7 Fig. 2.8 Fig. 2.9 Fig. 2.10 Fig. 2.11 Fig. 2.12 Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4 Fig. 3.5 Fig. 3.6 Fig. 3.7 Fig. 3.8 Fig. 3.9

Fig. 3.10 Fig. 3.11

The number of enrollees and beneficiaries in the urban and rural resident pension plan (millions), 2009–2020 The number of enrollees and retirees in the urban basic employee pension plan (millions), 2008–2020 Urban basic employee pension, health insurance, and unemployment insurance coverage of urban workers in China (%), 2003–2020 Pension coverage in urban China in CGSS across age cohort (%), 2005 and 2015 Health insurance coverage in urban China in CGSS across age cohort (%), 2005 and 2015 Monthly benefit level of urban and rural resident pensions, 2010–2019 (RMB) Dibao lines in Urban and Rural Areas (RMB), 2004–2020 The number of Dibao beneficiaries in urban and rural areas (millions), 1999–2020 The urbanization and household registration system (Hukou) in China, 1997–2020 (millions) Number of migrant workers in China, 2010–2020, millions The administrative hierarchy of Chinese subnational government Central-local shares of fiscal revenue/expenditure in China, 1980–2020 (%) Pension fund subsidies in China, 2007–2019 (billion, %) Government subsidy per enrollee in health insurance, 2003–2021 (RMB) Urban employment-based social insurance enrollment rate for migrant workers, 2007–2018 (%) Replacement rate of pension across 31 Provinces in 2015 (%) Dibao line as a share of local average wage in 31 provinces in 2018 (,RMB) Net inflow of population in 12 cities Hubei province in 2018 (000) Government health expenditure per capita and Population in 12 cities of Hubei province in 2013 (RMB, thousand people) Ratio of minimum to average wages and population size in 26 cities in the Yangtze River Delta, 2018 (,million) Government health expenditure per capita and population of 231 cities in China in 2017 (000 RMB, million people)

33 33

34 35 36 36 37 38 39 40 51 56 58 58 61 62 63 72

73 73 74

LIST OF FIGURES

Fig. 3.12

Fig. 5.1 Fig. 5.2

Fig. 5.3

Fig. 5.4 Fig. 5.5 Fig. 5.6 Fig. 5.7 Fig. 5.8 Fig. 5.9

Fig. 5.10 Fig. 5.11

Fig. 5.12 Fig. 5.13 Fig. 5.14

Fig. 6.1 Fig. 6.2

Government health expenditure per capita and population in cities in Yangtze River Delta, 2017 (000 RMB, million people) Government revenue and expenditure as shares of GDP, % Ratio between accumulated fund surpluses and annual fund expenditure across 31 provinces, 2019, basic employee pensions Regional variations in pension fund surpluses: Ratio of accumulated surpluses to annual expenditure (basic employee pensions), 2001–2019 Personnel in social security bureaus (,000,), 2001–2018 Educational level of personnel in social security bureaus, 2001, 2012, 2014, and 2018 (%) The number of personnel working in social security bureaus across 31 provinces in 2001 and 2014 The composition of personnel in social security bureaus in China, 2001, 2012, 2014 and 2018 (%) Health insurance enrollment status and hospitalization expenditure, 2012–2020 (RMB, %) a. Ratio of urban basic employee health insurance accumulated surpluses to annual fund expenditure across 31 provinces, 2019. b. Ratio of urban resident health insurance accumulated surpluses to annual fund expenditure across 31 provinces, 2019 Hospitalization rate per for enollees of basic urban employee insurance in 33 Chinese cities in 2017, (%) Social insurance fund revenue, expenditure, and accumulated surpluses as a share of GDP, 1990–2020, % Government subsidizing of social insurance, 2015–2020 (RMB billion, %) Accumulated surplus in the basic urban employee health insurance fund, 2010–2020 (RMB billion, %) The ratio of average accumulated surpluses and expenditure (2001–2013) and expansion in the size of social security bureaus per enrollee across provinces, 2001–2014 The responsiveness of government to the people’s wishes (% of “very responsive” and “largely responsive”) Percentage of migrants in the urban population in 31 provinces in the 2010 census (%)

ix

75 103

106

107 109 109 110 111 113

115 116

117 118 120

123 130 135

x

LIST OF FIGURES

Fig. 6.3 Fig. 6.4 Fig. 6.5 Fig. 7.1

Fig. 7.2 Fig. 7.3 Fig. 7.4 Fig. 7.5 Fig. 8.1

Private health insurance and share of overall Chinese health expenditure, 2001–2020 (RMB billion, %) Enterprise annuities as a percentage of China’s GDP, 2010–2020 (RMB billion, %) Growth rates in the number of migrant workers (total, eastern region, and other regions), 2016–2020 Frequency of keywords in the factiva database related to employment promotion and social policy reform, 2000–2020 (,000) Registered and surveyed unemployment rates in urban China, December 2017–April 2021 (%) Ratio of minimum to average wages and average wage level across 31 provinces in 2018 (, RMB) Incremental labor force in China (millions), 2008–2019 The financial condition of the unemployment insurance fund, 2000–2020 (billion RMB) a. The Gini coefficient in China (before and after transfer/tax). b. The Gini coefficient in the United States (before and after transfer/tax)

136 137 141

154 155 158 161 164

171

List of Tables

Table 1.1 Table 1.2 Table 2.1 Table 3.1 Table Table Table Table

4.1 4.2 4.3 5.1

Table 7.1 Table 8.1

The social policy areas covered in this book The structure of the book Rates of contributions to social insurance programs in China Percentage of rural migrant workers with insurance coverage (%) Policy targets for social programs The extent of health insurance coverage (%) The rural social health insurance policy process Government expenditure on social programs in the general budget, 2017–2019 (RMB billion) Breakdown of social programs in the urban labor market Major findings and arguments

12 17 41 61 86 92 93 104 159 172

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CHAPTER 1

The Political Economy of Social Policy Reform in China

Abstract Since the 1990s, new social insurance programs in both urban and rural areas have been initiated to achieve universal coverage of social protection. Also, government spending on social security and health has been increased dramatically. However, the major puzzle raised in the book is that disparity in accessing social protection and shallow benefit are still prevailing after the social policy reform. From the perspective of political economy, the book argues that it is the bureaucratic incentive structure that leads to a fragmented and stratified welfare system in China. This chapter reviews the related literature and outlines the major arguments of the book. Keywords Political economy · Welfare states · China · State capacity · Bureaucracy · Social insurance

China’s Economic Hyper-Growth and Inequality Between 1978 and 2019, annual growth in real Gross domestic product (GDP) per capita in China averaged about 8.4 percent (World Bank, 2021). GDP per capita has increased from US$ 333 in 1991 to US$10,217 in 2019 (World Bank, 2021). China has experienced a very high growth rate and lifted hundreds of millions of people out of poverty © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 J. Qian, The Political Economy of Making and Implementing Social Policy in China, Social Policy and Development Studies in East Asia, https://doi.org/10.1007/978-981-16-5025-3_1

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since the 1980s, but income disparity has been extremely high by international standards (Milanovic, 2021). Between 1984 and 2019, the Gini coefficient increased from 0.277 to 0.465, as shown in Fig. 1.1. In 2008, the Gini coefficient peaked at 0.491, one of the highest in the world. In principle, social welfare provision could provide financial coverage to protect low-income households from adverse shocks and reduce income inequality. The first function of welfare spending is equalization. People with different income levels, residential locations, or occupation statuses should have access to basic public services such as health care, education, and so on. The second function of welfare spending is social insurance (Iversen & Soskice, 2019; Moene & Wallerstein, 2001), protecting citizens from the financial consequences of unemployment, sickness, and other misfortunes. To a large degree, increasing income disparity can be addressed by social welfare programs. However, since the 1990s, the government of China retreated from financing welfare, and social protection for lowincome households was limited. Almost half of the urban and rural residents did not have health insurance in the early 2000s. In 2013, health care costs accounted for the plight of over 44% of poor households 0.55 0.5 0.45 0.4 0.35 0.3

1984 1987 1990 1993 1996 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0.25

Fig. 1.1 The Gini coefficient in China, 1984–2019 (Source National Bureau of Statistics and the World Bank)

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THE POLITICAL ECONOMY OF SOCIAL POLICY REFORM IN CHINA

3

who had fallen into poverty (Wang, 2020: 178). The financial burden of health-related shocks is one of the major reasons is for the persistence of poverty in China.1 After the early 1990s, in urban areas, many state-owned enterprises were privatized, reorganized, or even shut down. Social insurance coverage was very low. In 1998, only 38% of urban workers had a pension plan.2 In rural areas, the commune model of organizing agricultural production was replaced by the “Household Responsibility System,” under which land is allocated to individual families and production and marketing decisions are decentralized to the family level. Moreover, the provision of public services has been marketized since the 1990s. People have to pay user fees for public services (Wong & Bird, 2008). For example, for junior secondary school education, a student in rural areas was charged over RMB102 on average in miscellaneous fees in 1999 (Lv et al., 2004), which accounted for about one-sixth of the rural poverty line in that year. The outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 exposed the underdevelopment of the Chinese welfare system. As a result of the public health crisis associated with SARS, many people in China could not access basic health services (Ge et al., 2007). Providing a social safety net thus became a top priority. Since 2003, under the policy of “building a harmonious society,” the Chinese government has begun to shift expenditure to redistributive programs. In a relatively short period of time since 2003, changes in the social welfare system in China have been dramatic. In 2003, the Chinese government began prioritizing two aspects of social reform under its “building a harmonious society” policy. First, since the mid-2000s, new social insurance programs, including pension and health insurance, have been implemented for urban and rural residents, the flexibly employed, peasants, and migrant workers. Universal coverage of pension and health insurance has been achieved to some degree. By the end of 2020, out of China’s 1.4 billion people, about 1 billion are enrolled in pension schemes and 1.36 billion are covered by social health insurance.3 Micro-level data 1 http://www.gov.cn/xinwen/2016-04/28/content_5068915.htm, accessed on 17 May 2021. 2 CEIC database. 3 http://paper.people.com.cn/rmrb/html/2021-03/04/nw.D110000renmrb_2021

0304_1-04.htm, accessed on 18 April 2021.

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in the 2010s also show that the income Gini coefficient fell by 8% after taking into account new government programs, including pensions (Luo et al., 2021). Gao et al. (2019) also suggest that pensions have played a significant role in reducing the Gini coefficient since the 2000s. Secondly, government social expenditure has significantly increased. Total government spending on social security (including both social insurance and social assistance) and health increased from about RMB 744 billion in 2007 to RMB 5.2 trillion in 2020, with an annual growth rate of 16.1% on average during this period (Fig. 1.2). Government social spending, including benefits targeting low-income households, the elderly, disabled, sick, and unemployed, accounted for 21% of GDP in Organisation for Economic Co-operation and Development (OECD) countries on average in 2016. While the number in China is not as high as in OECD countries, the growth rate of expenditure is dramatic. Total government expenditure on health and social security rose from about 2.5% of GDP in 2003 to 5.1% in 2020 (Qian & Mok, 2016; CEIC). The percentage of expenditure on health and social security in total fiscal expenditure also increased from 14.9% in 2007 to 19.4% in 2019. After the outbreak of COVID-19, the share of expenditure on health and social security in total fiscal expenditure increased significantly, from 19.4% in 2019 to 21.1% in 2020 (Fig. 1.2). 22%

3,500

20%

3,000 2,500

18%

2,000 16% 1,500 14%

1,000

12%

500

10%

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 health social security expenditure on health and social security as a share of fiscal expenditure

Fig. 1.2 Government expenditure on health and social security in China and its share in total fiscal expenditure (%, RMB billion), 2007–2020 (Source CEIC)

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THE POLITICAL ECONOMY OF SOCIAL POLICY REFORM IN CHINA

5

However, one major puzzle is that since the recent round of social policy reform, the welfare system in China has been even more fragmented and stratified. Furthermore, despite significantly increased government social expenditure, the benefit level is still low, and the coverage of some social programs is also far from universal. One concern is the uneven expansion of pension coverage. A major aim of pension reform has been to provide universal coverage. However, compared to the case before the recent round of social policy reform, many private-sector workers are still not covered by employment-based social insurance since the expansion. Figure 1.3a shows that in 2003, the coverage of the urban employee pension scheme was positively associated with the size of the private sector in the local province. In the contrast, after the social insurance coverage expansion during the 2000s, there was a negative correlation between the coverage of the basic employee pension scheme and the share of the private sector in 2018 (Fig. 1.3b). It suggests that while there has been a large expansion in recent years, many workers in the private sector have not been covered the (urban employee) pension. The coverage expansion was very uneven across the public and private sectors. Another issue is the shallow benefit level of pension plans. The shallow benefit level is more notable for elderly under the urban and rural resident pension programs. Whereas both rural and urban residents have been covered by pension plans since the reform, the disparity in the monthly benefit level between basic employee pensions (for urban formal sector workers) and residents’ pensions (for people outside the urban formal sector) has been huge. Figure 1.4 shows that in 2013, the average monthly benefits for urban employee pensions and urban–rural resident pension schemes were RMB 1,856 and RMB 81 respectively. In 2018, the average monthly benefits for employee pensions and residents’ pension were RMB 2,597 and RMB 150 respectively. It was estimated that the replacement rate for residents’ pensions was only about 13% in 2019.5 Another issue is the low utilization rate of health care, even after China achieved universal health insurance coverage. A major aim of the Chinese health insurance reform is to improve the affordability and accessibility of health care.

5 China Reform, March 2021, p. 54.

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a

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120%

Pensoion Coverage

100% 80% 60% 40% 20% 0% 10%

15%

20%

25%

30%

35%

40%

45%

50%

Share of the private sector and individual businesses in the total urban labor force

b

140%

Pension coverage

120% 100% 80% 60% 40% 20% 0% 40%

45%

50%

55%

60%

65%

70%

75%

Share of the private sector and individual businesses in the total urban labor force

Fig. 1.3 a. Pension Coverage and the Size of the Private Sector across 31 Provinces in 2003 (Source China Labor statistical yearbook 4 ). b. Pension Coverage and the Size of the Private Sector across 31 Provinces in 2018 (Note Here pension coverage refers to the urban basic employee pension. Source China Labor statistical yearbook) 4 Here pension coverage refers to the urban basic employee pension. The coverage rate (i.e. the number of enrollees as the share of the total urban labor force) may be exaggerated, since in some inland provinces, many workers left for coastal areas after joining the local pension program, and they were no longer counted among the local labor force.

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3,000 2,500 2,000 1,500 1,000 500 0 2013

2014

2015

2016

2017

2018

average urban and rural resident pension average pension for reƟrees in employee pension

Fig. 1.4 The disparity of average pension benefits between retirees in basic employee pensions and residents’ pensions (monthly benefit, RMB), 2013–2018 (Source China Human Resource and Social Security Statistical Yearbook, 2019)

Figure 1.5 shows the overall decline in the utilization of health-care services (i.e., health-seeking behavior), based on the China Health and Nutrition Survey (CHNS), which provides consistent and compatible survey data for over two decades in rural and urban China. The survey includes over 4,400 households in nine provinces.6 Health-seeking behavior was defined on the basis of respondents’ answers to a question in the CHNS survey: “What did you do when you fell ill?” The choices given in the survey were no treatment at all, self-treatment, seeing a local health care worker, and seeing a doctor. Figure 1.5 shows that many people still chose self-treatment or no treatment since the expansion of health insurance in the 2000s. Even in 2015, a large proportion of people in both urban and rural areas continued to engage in self-treatment or non-treatment when they fell ill. Another serious concern is the under-coverage of unemployment insurance and social assistance, especially for those adversely affected in the labor market. Figure 1.6 shows that the share of registered employed 6 CHNS has been expanded to 12 and 15 provinces in 2011 and 2015 wave respectively. See the website of CHNS https://www.cpc.unc.edu/projects/china, accessed on 2 May 2021.

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60% 50% 40% 30% 20% 10% 0% 1993

1997

2000

2004

self-treat+no-treatment (urban)

2006

2009

2011

2015

self-treat+no-treatment (rural)

Fig. 1.5 The share of self-treatment and no treatment in health-seeking, 1993– 2015 (Source CHNS datasets)

persons claiming unemployment insurance benefits has been decreasing since 2001 and has fallen below 25% since 2010. Only 1% of enrollees of unemployment insurance claimed benefit in recent years. This under-coverage has been reflected in particular in the COVID19 outbreak. After the outbreak of the COVID-19 crisis in 2020, both unemployment insurance and social assistance played only a limited role in protecting vulnerable groups. Between the fourth quarter of 2019 and the first quarter of 2020, the economic growth rate decreased from 6% to -6.8%. With such a big shock to the economy, the adverse effect in the labor market was very serious. The urban unemployment rate increased from 5.3% in January to 6.2% in February 2020. The actual rate may have been even higher, because many migrant workers were not counted. The number of migrants working outside of their hometowns in September 2020 was nearly four million below the number in September 2019. However, unemployment insurance and social assistance played only a limited role in protecting disadvantaged groups (Cai et al., 2021; He et al., 2021; Lu et al., 2020; Wong & Qian, 2020a, 2020b). It was estimated that the total number of unemployed in 2020 was about 12% of the total labor force,

1

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THE POLITICAL ECONOMY OF SOCIAL POLICY REFORM IN CHINA

60% 50% 40% 30% 20% 10%

2019

2020

2018

2016

2017

2014

2015

2012

2013

2011

2010

2009

2008

2006

2007

2005

2004

2003

2001

2002

2000

1999

0%

RaƟo of beneficiaries to registered unemployed RaƟo of beneficiaries to enrollees of unemployment insurance

Fig. 1.6 The number of beneficiaries as a share of registered unemployed workers and of enrollees in unemployment insurance (%), 1999–2020 (Source CEIC)

with an average of 4.5 months of unemployment.7 However, the number of beneficiaries as a share of the total number of registered unemployed actually decreased from 24.1% in 2019 to 23.3% in 2020 (Fig. 1.6). By the end of 2020, there were only about 2.7 million workers claiming unemployment insurance, up from 2.3 million in 2019. Similarly, social assistance has played only a limited role in supporting low-income households in the COVID-19 crisis. Figure 1.7 shows that the number of beneficiaries of social assistance had not changed significantly since the last quarter of 2019 (about 44 million in total). The number of beneficiaries of temporary assistance did not change much in the first three quarters of 2020 (Fig. 1.8).

7 http://www.china.com.cn/opinion/think/2021-05/14/content_77497384.htm, accessed on 21 May 2021.

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50 45 40 35 30 25 20 15 10 5 0 2019Q4

2020Q1

2020Q2 urban

rural

2020Q3

2020Q4

total

Fig. 1.7 Social assistance recipients (Dibao) (millions), 2019 Q4–2020 Q4 (Source Ministry of Civil Affairs) 7 6 5 4 3 2 1 0 2019Q4

2020Q1

2020Q2

Rural relief for desƟtute

2020Q3

2020Q4

Temporary assistance

Fig. 1.8 Temporary assistance recipients (millions), 2019 Q4–2020 Q4 (Source Ministry of Civil Affairs)

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Research Questions So, why was the welfare system in China even more fragmented and stratified after major initiatives in social programs and significantly increased fiscal input? Three main questions are addressed in this book. First, how does China’s bureaucratic incentive structure lead to a fragmented and stratified welfare system? Second, what institutional arrangements affect the bureaucratic incentive structure in policy implementation? Third, to what extent is the current social welfare system configured by the administrative and fiscal capacity of the bureaucracy? As policy implementation of social policy reform is a dynamic process, going beyond the above three questions, the book asks (a) how individuals such as workers, patients, or residents respond to policy changes, given the way how the government implements the policies, and (b) what would happen to bureaucrats’ incentives in implementing social policy reform if the central government’s policy priorities changed?

Methodology This book deals with the developments in China’s social policy since the 1990s, with a focus on reforms since the outbreak of the COVID19 pandemic. The discussion is based on empirical evidence, including a variety of Chinese- and English-language sources, including central and local government documents, budgetary data, household surveys, media databases, and broader socioeconomic data. Pensions, social assistance, health insurance, and unemployment insurance are the major social policy areas considered in this book (Table 1.1). All four contribute to both financial protection and income redistribution. Education spending is a social policy area not discussed in this book in detail, however, because unlike programs in the other four areas, it does not provide aid to those impacted by catastrophic events.

What This Book Is About The book discusses ways to motivate bureaucrats, such as performance evaluation, local policy pilots, regional integration, and coordination among government departments in policy implementation. Logrolling among government departments and feedback from citizens and workers

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Table 1.1 The social policy areas covered in this book Programs

Starting

Remark

1

Pensions

From 1990s, expanded in 2000s

2

Health Insurance

From 1990s, expanded in 2000s

3

Unemployment Insurance

From the 1990s

4

Social Assistance

From 1990s, expanded in 2000s

Later expanded to rural areas as well as urban informal sector Later expanded to rural areas as well as the urban informal sector Later expanded to rural areas as well as urban informal sector Known as Dibao; later expanded to rural areas

may help get bureaucrats to change their policy positions. Central government policy priorities configure the incentives and capacity of bureaucrats in social policy reform and local bureaucrats respond to the central-level initiatives. Major concerns in policy capacity and policy feedback in social policy reform in China are also considered in the book. Many issues raised in the COVID-19 pandemic are reexamined and interpreted from the perspective of political economy. Political and administrative institutions discussed in the book that help explain social policy reform in China include the decentralization of the financing and management of social policy programs; coordination across government departments in policy implementation; the capacity for policy implementation; the fact that the central government has recently made jobs a high priority in its policy agenda; and feedback from citizens/workers, and how bureaucrats respond to that feedback. The trade-off between redistributive programs and employment promotion policies shows how the central government’s policy agenda (i.e., “top-level” design) can affect social policy reforms. One caveat is that this book does not discuss political culture, although it is acknowledged in the literature to be an important aspect of the policy process (Gore, 2019; Ji & Jiang, 2020; Pines, 2012; Zhao, 2009). Political culture is related to regime legitimacy and how politicians and bureaucrats conceive themselves and their duties. Another caveat is related to the role of the Communist Party of China (CPC). Recently, the idea of a broadly defined government including both the party and government has been highlighted in official discourse and recent policy initiatives in

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China.8 The 2018 “Decision of the CPC Central Committee on Deepening the Reform of the Party and State Institutions,” in which many party and government departments are supposed to be consolidated,9 is especially noteworthy in this respect. The role of party in bureaucratic decision-making is increasingly more important. However, while there is a growing literature on the role of the party (Gore, 2019; Gore & Zheng, 2019; Koss, 2018; Zheng, 2008), data and resources to explore this issue further are still limited. This book does not, therefore, distinguish between the CPC and China’s government.

A Review of the Literature In the welfare state literature, the welfare regimes in East Asia are seen as accommodating economic growth (Esping-Andersen, 1990; Holliday, 2000; Jones, 1993; Ku & Finer, 2007; Kwang, 1997; Kwon & Holliday, 2007; Lee & Qian, 2017). In the context of China, the welfare system, to a large degree, can be interpreted as a response to economic changes in recent decades. For example, major social insurance programs including pension plans, health insurance, and unemployment insurance were initiated in the 1990s, when there were large-scale of layoffs in stateowned enterprises (SOEs). Health reform was implemented in the 2000s, when policymakers realized that the demand for health care had increased significantly with economic growth. However, there is a large gap in the literature with respect to political decisions to redistribute resources to various social groups—and to how the welfare state responded to vested interests. Furthermore, welfare provision is closely linked to the economic growth model in China. In the literature, there are discussions about the linkage between social policies and the labor market, foreign investment, human capital investment, and local regulatory enforcement in China. For example, it has been noted that local governments tend to reduce the production cost for investors in social protection to attract 8 For the recent trend in discourses on this point, see http://www.nfcmag.com/art icle/7134.html, accessed on 18 April 2021. 9 Also see a major restructuring plan initiated by the Communist Party of China right after the first session of the 13th National People’s Congress in March 2018, downloadable from http://www.gov.cn/zhengce/2018-03/21/content_5276191.htm#1, accessed on 20 April 2021.

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foreign investors, and to stimulate economic competitiveness to promote economic growth and revenue (Gallagher, 2007, 2017; Ye & Keng, 2015; Zhu, 2017). However, this literature largely focuses on local officials. There is a gap in the literature with regard to the nexus between bureaucrats in general and political institutions in social policymaking. In the political economics literature, politicians’ policy choices are explained by the variations in structures of political power (Acemoglu & Robinson, 2006, 2012; Bardhan, 2004; Bates, 1981; Besley & Persson, 2011; Olson, 2000; Persson & Tabellini, 2003). Welfare provision in social policy reform can be interpreted as the political process by which welfare is made available (Musgrave, 1999). In particular, policy outcomes can be considered as an outcome of interactions among interest groups, given their resource and incentive structures. In the comparative institutionalist literature (e.g., Gingrich, 2015), extractive or redistributive policies and social welfare institutions have been understood in terms of the power structures of different social groups. Economists argue that the institutions are pivotal. The objective of government may also be seen as self-interest, rather than welfare maximizing (Blankart & Koester, 2016). Both strands of literature highlight voting as the major mechanism by which politicians adjust their policy positions, but policy changes in countries in which the voting mechanism is absent are not fully discussed. In the state capacity literature, bureaucrats are considered to be one major dimension of state capacity in implementing policies (Bardhan, 2016; Kohli, 2004: 10; Qian & Sng, 2021). Since the 1980s, local officials in post-Mao China have treated economic growth as the fundamental policy target and coordinated local economic reforms accordingly (Naughton, 2018; Xu, 2011). Economic decentralization, local competition, and bureaucrats’ career concerns are used to shed light on the rapid economic growth in China (Bardhan, 2016; Xu, 2011). Bureaucrats in China and are exempt from the political controls of the legislature. Compared to their counterparts in other countries, bureaucrats in China have even broad discretion over policy implementation and are only accountable to bureaucrats directly above them (Qian, 2021). With the advantage of expertise in information and knowledge, bureaucrats in social policy areas are even more influential (Huang, 2013). The capacity to collect and analyze data and information and information-sharing are very important in implementing social policy (Qian, 2021). It has been noted that inasmuch as every government department has its own interests, bargaining and negotiation among bureaucrats are routine in policy

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implementation in China (Shirk, 1993). However, there are very few studies to link departmental interest, capacity, and policy implementation. It is observed that local officials in China are highly responsive to public complaints (Distelhorst & Hou, 2017; Tang, 2016). When bureaucrats do not have the capacity to collect information or design an effective policy, participation by citizens in the policy process can also be very useful (Korolev, 2017; Perry & Heilmann, 2011; Stromseth et al., 2017). Individual citizens can also “fire-alarm” regulators using mechanisms such as mediation, arbitration and litigation (e.g., social insurance, see Gallagher, 2017; Qian et al., 2021).

Major Arguments In this book, it is argued that many issues in social policy reform in China can be explained by incentives and the capacity of the bureaucrats in the central and local governments, interagency coordination within the government as well as the interaction between the bureaucracy and citizens. Political and administrative institutions configuring incentives of bureaucrats such as performance evaluation system are pivotal. While social policy reforms are intended to improve the provision of welfare, the effectiveness of the implementation of these initiatives is subject to bureaucrats’ incentives. The Chinese welfare system has been largely managed and financed by local governments. Local officials have informational advantages in policy implementation, and they are motivated by the performance evaluation system. Regional variations of welfare provision are a result of the decentralized managed and financed welfare system. Local policy pilots and regional integration initiatives have been used to integrate local social insurance plans and to improve the regional portability of the welfare regime, but they also have limitations. Facilitating coordination among government departments, which have their own interests, is another issue in social policy reform. While the central government uses instruments such as “small leading groups” and inter-ministerial joint meetings to address the issue, these instruments are not very effective, because they are not able to address the incentive issue. The central government can deliberately divide the authority in managing social programs to allocate a clearly defined right of control to each department. Logrolling, as a voluntary mechanism, can also facilitate the exchange of support among government departments.

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The level of policy capacity can be endogenously determined. Information and analytical capacities are likely to be critical for policy implementation, since the coordination among government departments and policy evaluation depends on government capacity. While many policies have been initiated to improve policy capacity, bureaucrats allocate resources to improve it in policy areas rewarding to their career concerns. China has an online notice-and-comment system for public participation in policy making, but bureaucrats are likely to respond chiefly to feedback that has implications for local economic growth and employment conditions. Local implementation of social policy reform responds to changing policy priorities at the central level. One particular interesting case discussed in this book highlights the tension between employment promotion policies, a high priority of the central government, and social policy reform. In recent years, and in particular, since the outbreak of the COVID-19 pandemic, social policy reform has had to accommodate employment promotion policies.

Contribution to the Literature The book contributes to the literature in the following ways. First, it extends the literature of political economics to study bureaucrats’ behavior in social policy in an authoritarian regime. Different from countries in which policy changes and policy implementation are configured by the voting mechanism, this book shows how the incentive and capacity of bureaucrats define the welfare regime in China. Second, this book contributes to the literature by connecting the state capacity literature and social policy reform. The capacity of bureaucrats is critical in social policy reform. Social policy reform has also been supported by the large degree of discretion in policy experimentation that bureaucrats can have. However, bureaucrats may allocate resources to policy areas that are more rewarding (e.g., economic growth) rather than to social policy reform, as both the state bureaucracy and local government have incentives to promote economic growth. Third, the book extends the welfare state literature by taking into account the political economy of making and implementing policy. In the literature, vested interests are argued to be the major reasons for the lack of changes in welfare institutions in developed countries (e.g., the

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adoption and expansion of major social programs). Not only are institutional changes hard to make owing to their direct costs but policymakers must overcome the resistance of strong vested interest groups under the welfare state (Pierson, 1994, 1996). Large-scale reforms may need a very high momentum to earn support, since there is uncertainty about the outcomes of institutional changes (Acemoglu & Robinson, 2006; Shepsle, 1986). In legislative institutions in developed countries, there are usually many veto players in the process of institutional change, who make it very difficult to achieve (Tsebelis, 2002). Like vested interests in other contexts, bureaucracy in China is highly important in policy reforms. How to motivate bureaucracy is the key issue in policy implementation in China. Fourth, the book contributes to the China studies literature by discussing a recent change in the political economy of China: the growing importance of a policy agenda set by the central government. Policy implementation at the local level now accommodates such a “top-level” design, in stark contrast to the case in past decades, when the decentralization and local policy pilots were dominant in policy implementation. Table 1.2 sets out the structure of the book. Puzzles raised in this chapter will be explained in the chapters to follow from the perspective of political economics. After reviewing China’s social policy reform in Chapter 2, Chapters 3 and 4 discuss the incentive structure of local officials and bureaucrats across various government departments. Chapter 5 analyzes the roles of resource allocation and government capacity in Table 1.2 The structure of the book Actors

Topics

Chapters

Central government Local Bureaucrats Bureaucrats in government departments Bureaucrats Citizens, Workers and Firms Central and local governments

Social Policy Reform Decentralized financing and management Coordination of government departments in policy implementation Capacity in managing social programs Policy feedback Interaction between employment promotion policy and redistributive programs Welfare regime and state capitalism in China

2 3 4

Bureaucracy

5 6 7

8

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the policy process. Chapter 6 discusses how the feedback from citizens, workers and firms helps configure policy outcomes. Chapter 7 discusses how bureaucrats respond to the changing priorities of social policy reform and employment promotion policy, inasmuch as there are tensions between these two major policy objectives. Chapter 8 summarizes the findings of the book and provides a perspective on future social policy reform in China.

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Advances in Comparative-Historical Analysis (pp. 67–96). Cambridge University Press. Gore, L. (2019). The Communist Party-dominated governance model of China: Legitimacy, accountability, and meritocracy. Polity, 51(1), 161–194. Gore, L. L., & Zheng, Y. (Eds.). (2019). The Chinese Communist Party in action: Consolidating party rule. Routledge. He, A., Zhang, C., & Qian, J. (2021). Covid-19 and social inequality in China: The local-migrant divide and the limits of social protections in a pandemic. Policy and Society, forthcoming. Holliday, I. (2000). Productivist welfare capitalism: Social policy in East Asia. Political Studies, 48(4), 706–723. Huang, Y. (2013). Governing Health in Contemporary China. Routledge. Iversen, T., & Soskice, D. (2019). Democracy and prosperity. Princeton University Press. Ji, C., & Jiang, J. (2020). Enlightened one-party rule? Ideological differences between Chinese Communist Party members and the mass public. Political Research Quarterly, 73(3), 651–666. Jones, C. (1993). The Pacific challenge: Confucian welfare states. In C. Jones (Ed.), New perspectives on the welfare state in Europe. Routledge. Kohli, A. (2004). State-directed development: Political power and industrialization in the global periphery. Cambridge University Press. Korolev, A. (2017). De-ideologized mass line, regime responsiveness, and statesociety relations. China Review, 17 (2), 7–36. Koss, D. (2018). Where the party rules: The rank and file of China’s communist state. Cambridge University Press. Ku, Y. W., & Finer, J. C. (2007). Developments in East Asian welfare studies. Social Policy & Administration, 41(2), 115–131. Kwon, S., & Holliday, I. (2007). The Korean welfare state: A paradox of expansion in an era of globalisation and economic crisis. International Journal of Social Welfare, 16(3), 242–248. Lee, S. A., & Qian, J. (2017). The evolving Singaporean welfare state. Social Policy & Administration, 51(6), 916–939. Lu, Q., Cai, Z., Chen, B., & Liu, T. (2020). Social policy responses to the covid19 crisis in China in 2020. International Journal of Environmental Research and Public Health, 17 (16), 5896. Luo, C., Li. S., & Yue, X. (2021). Measurement of China’s macroeconomic resilience: A systemic risk perspective. Social Sciences in China, 33–54. Lv, W., et al. (2004). Public education input for basic education service in rural areas (Working Paper). Dongbei University of Finance and Economics. Milanovic, B. (2021). China’s inequality will lead it to a Stark choice. Foreign Affairs.

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Moene, K. O., & Wallerstein, M. (2001). Inequality, social insurance, and redistribution. American Political Science Review, 95(4), 859–874. Musgrave, R. A. (1999). The nature of the fiscal state: The roots of my thinking. Public Finance and Public Choice, 29–50. Naughton, B. J. (2018). The Chinese economy: Adaptation and growth. MIT Press. Olson, M. (2000). Power and prosperity: Outgrowing communist and capitalist dictatorships. Basic Books. Perry, E., & Heilmann, S. (2011). Embracing uncertainty: Guerrilla policy style and adaptive governance in China. In E. J. Perry & S. Heilmann, (Eds.), Mao’s invisible hand: The political foundations of adaptive governance in China (pp. 1–29). Cambridge, MA: Harvard University Press. Persson, T., & Tabellini, G. (2003). The economic effects of constitutions. MIT Press. Pierson, P. (1994). Dismantling the welfare state?: Reagan. Cambridge University Press. Pierson, P. (1996). A historical institutionalist analysis. Comparative Political Studies, 29(2), 156–179. Pines, Y. (2012). The everlasting empire: The political culture of ancient China and its imperial legacy. Princeton: Princeton University Press. Qian, J. (2021). Experimentalism as a policy style: The case of China. In M. Howlett & J. Tosun (Eds.), The Routledge handbook of policy styles (pp. 38– 49). Qian, J., & Mok, K. H. (2016). Dual decentralization and fragmented authoritarianism in governance: Crowding out among social programmes in China. Public Administration and Development, 36(3), 185–197. Qian, J., & Sng, T. (2021). The state in Chinese economic history. Australian Economic History Review. Qian, J., Wen, Z., & Jiang, J. (2021). Firm compliance, state enforcement and social insurance reform in China: Informal sector as a testing ground (Working Paper). Shepsle, K. A. (1986). Institutional equilibrium and equilibrium institutions. Political Science: The Science of Politics, 51, 51. Shirk, S. L. (1993). The political logic of economic reform in China. University of California Press. Stromseth, J. R., Malesky, E. J., & Gueorguiev, D. D. (2017). China’s governance puzzle: Enabling transparency and participation in a single-party state. Cambridge University Press. Tang, W. (2016). Populist authoritarianism: Chinese political culture and regime sustainability. Oxford University Press. Tsebelis, G. (2002). Veto players: How political institutions work. Princeton University Press.

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Wang, S. (2020). Poverty reduction and targeted poverty alleviation: Theory and practice. Economic Science Press. Wong, C., & Bird, R. (2008). China’s public finance, a work in progress. In L. Brandt & T. Rawski (Eds.), China’s great economic transformation. Cambridge University Press. Wong, C., & Qian, J. (2020a). COVID-19 highlights need to strengthen China’s social safety net (I): The unemployment insurance scheme (EAI Background Brief No. 1572). Wong, C., & Qian, J. (2020b). COVID-19 highlights need to strengthen China’s social safety net (II): The social assistance programmes (EAI Background Brief No. 1573). World Bank. (2021). https://databank.worldbank.org/home.aspx Xu, C. (2011). The fundamental institutions of China’s reforms and development. Journal of Economic Literature, 49(4), 1076–1151. Ye, J., & Keng, S. (2015). Development paths, government-business relations and local social security systems: A comparison of two cities in China. China: An International Journal, 13(2), 67–87. Zhao, D. (2009). The mandate of heaven and performance legitimation in historical and contemporary China. American Behavioral Scientist, 53(3), 416–433. https://doi.org/10.1177/0002764209338800 Zheng, G. (2008). Zhongguo Shehui Baozhang 30 Nian. People’s Press. Zhu, B. (2017). MNCs, rents, and corruption: Evidence from China. American Journal of Political Science, 61(1), 84–99.

CHAPTER 2

The Development of Social Policy Reform in China

Abstract This chapter provides a brief overview of social policy reform in China since the 1980s. The developments of major redistributive social programs including pension, health insurance, unemployment insurance, and social assistance programs (Dibao) are discussed. The main actors in the social policy reform are bureaucrats including government officials at the local level and technocrats at the central level. This chapter discusses the role of bureaucrats in social policymaking and implementation. Keywords Pension · Health insurance · Unemployment insurance · Social assistance · Dibao · Bureaucrats

This chapter provides an overview of the social welfare system in urban and rural China. The recent round of social reform is highlighted as a landmark change in the Chinese welfare regime. Social programs have expanded coverage since the early 2000s. The government has increased the budget allocated for social programs significantly. Regulations and laws supporting social policy reforms have been promulgated. This chapter also discusses the role of the major players in the policy process: bureaucrats in government departments and local officials.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 J. Qian, The Political Economy of Making and Implementing Social Policy in China, Social Policy and Development Studies in East Asia, https://doi.org/10.1007/978-981-16-5025-3_2

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China’s Welfare System Before the 1980s A work-unit-based welfare system existed in China before the establishment of the People’s Republic. Republican China provided enterprisebased welfare in the 1930s and 1940s, associated with the expansion of the state ownership of industrial enterprises (Frazier, 2002). After the establishment of the People’s Republic of China, basic public services were provided by people’s communes in rural areas and work units in urban areas before the 1980s. In rural China before the 1980s, welfare provision largely depended on local communes. Cooperative medical schemes (CMS), funded partly by agriculture cooperatives and partly by individual members, covered over 80% of villages by 1970 (Wang, 2011). Although direct state investment in health care was limited, public health service had also been improved by the deployment of “barefoot doctors”—peasants who treated their fellow commune members after a few months’ medical training (Hu, 1976). Under Mao Zedong (pre-1980) and during the early reform period (the 1980s), China’s welfare services had been largely provided based on the danwei (work units) in which most urban employees were organized, including employees of government departments, state-owned enterprises (SOEs), and public service entities (Xie & Wu, 2008). Enterprise-based welfare policies covered health, workplace injury, maternity, retirement, and accidental death benefits (Frazier, 2002). The majority of these welfare provisions were funded by the government (Duckett, 2012). Among other factors, the size of the work unit and the ranks of bureaucrats and employees determined the benefit level of welfare packages (see, e.g., Dillon, 2015). Prior to the 1980s, SOEs were dominant in the labor market in urban China. The private and informal sectors were very small. These urban work units provided a comprehensive system of social benefits and welfare packages, including health care, education, and pensions. Urban workers were treated as “insiders” in the labor market (Knight & Yueh, 2009)1 and rural residents were restricted by the household registration system (i.e., hukou) from migrating to urban areas. 1 The insider-outsider theory of employment in the context of European welfare states could be useful to understand the fragmentary and occupation-based welfare regime in China. In some European countries, strictness of employment protection legislations is divided between workers with permanent employment (“insider”) and those without (“outsider”). For a more general discussion see Lindbeck and Snower (2001).

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During this period, China had an enterprise-based pension system. Retirees who used to work in state-owned enterprises (SOEs) and collective enterprises would receive pensions from their former employers. This system was an unfunded system, because retirees’ pension benefits were financed by their work units (Zheng, 2008). In this system, the ratio of the average benefits for retirees to wage (i.e., replacement rate) was about 80%. This, however, did not cover people outside the formal sector, such as workers in private enterprises. Before 1980, China provided almost everyone with access to at least one basic standard of health care. In urban areas, hospitals were owned either by the state or by large SOEs. Workers and their dependents, as well as retirees, also had access to subsidized care through their employer (the government or a SOE). Fees charged were maintained at very low levels and funded largely by the employers or came in the form of direct state subsidies. The Government Insurance Scheme (GIS) covered government employees and their dependents; the Labor Insurance Scheme (LIS) covered SOE workers and (with reduced benefits) their dependents. In pre-1980 China, rural residents belonged to an agricultural commune and had access to basic primary care, as well as (on referral) hospital care with low out-of-pocket charges. Under the CMS, every commune member contributed a small amount of money to collective funds. Primary-care providers were paid by the commune, and hospitals were funded by subsidies from central and local governments and reimbursement from the CMS.

The Welfare System in the 1980s and 1990s and Initiation of New Social Programs After the 1980s, the provision of public services was dramatically reduced in both rural and urban areas. There were two dramatic changes since the late 1980s in urban society. First, since the 1990s, following the restructuring of many SOEs, workers who had been laid off fell into poverty, since many of them lacked sufficient skills to work in the private sector. Second, the urban social welfare system had been dissolved following SOE reform. Benefits from in-kind transfers (via work units) were reduced from 21% of total household income in 1998 to 0.7% in 2002 in urban China (Gao, 2017). An increasing amount of user fees implies that many urban households have to pay a bigger share of the expenditure on education, housing, and health care. Many poor urban households may have

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difficulties meeting their basic needs after being hit by negative external shocks such as serious diseases. It was estimated that the number of China’s urban poor in 2003 might be as high as 72 million (World Bank, 2019). With the fading out of the central plan system in the 1980s, the government reduced its financial responsibility for public services and transformed them into market-oriented services. In many cases, user fees were charged to support public service provision such as health care. The work unit/commune-based welfare system was gradually replaced by social insurance programs managed by the local government. In this context, access to welfare services has been largely defined by the hukou system, a distinctive feature of social policy in China (Fang, 2021; World Bank, 2013). Initiated in the 1950s, this system registers people by their hometown origin and by urban versus rural status. Hukou, or household registration, is defined by two features of the registration system: (i) “agriculture” and “non-agriculture” hukou, with the latter assigned to urban residents; and (ii) hukou location. The hukou’s location allows individuals to access public services provided in a particular locality. Pensions Since the later 1980s, some pilots for social pooling of pension funds had started, in particular in SOEs.2 In the mid-1990s, 45% of workers fell under the pension scheme (Fig. 2.1). In contrast, health insurance coverage was less than 10% in 1997. A major pension reform was initiated in the 1990s. In 1997, the State Council announced a “basic pension system for enterprise workers” in urban areas nationwide. Unlike the traditional system built on the basis of work units, this basic pension system is a public pension system financed like social insurance, with defined benefits financed by 17% of wages contributed by employers. Employers and employees contribute 3% and 8% of wages respectively to individual accounts. If an employee contributes to the basic pension scheme continuously for a minimum of fifteen years, he or she will receive benefits amounting to 20% of the local average wage rate from the social pooling account after retirement. The replacement rate (i.e., the ratio of the benefits of retirees to the local average wage rate) under the basic pension system 2 This point was highlighted in the 7th five-year plan released in 1985. See https:// www.ndrc.gov.cn/fggz/fzzlgh/gjfzgh/200709/P020191029595672223126.pdf.

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50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 enrollees of social health insurance as a share of labor market enrollees of pension as a share of labor market

Fig. 2.1 The enrollment rate of pension and health insurance, 1989–2001 (Source Zhongguo Shehui Baoxian Nianjian, 2002)

is targeted at 59.2% for a worker who has worked for thirty-five years (Fang & Feng, 2020). Workers who have contributed to the basic pension system continuously for thirty-five years are expected to receive 38.5% of their wages from the individual accounts. The policies for the basic pension scheme are cohort-specific. For those joining the labor market after 1997, pension benefits and contributions are subject to the aforementioned rules. For those who retired before 1997, pension benefits and contributions are based on the old regime. Health Insurance Health insurance coverage in China had decreased since the 1980s. A new Basic Health Insurance Scheme (BHI) was initiated in the mid-1990s for urban employees in the formal sector based on simple principles. First, risk-pooling and plan management is through a social security bureau at the city level. The basic version of the plan covers only current and retired employees (but not their dependents) of participating employers, be they the government, SOEs, or private firms. Funding of the plan is through payroll deductions based on a minimum of 8% of the worker’s salary (6% from the employer and 2% from the employee). This amount is then split between a “social pooling account”

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and an “individual account” in the name of the worker, for use in paying both outpatient and inpatient care. By 2001, only about 23% of urban workers were enrolled in social health insurance, a much lower percentage than for pension programs (45%) (Fig. 2.1). Unemployment Insurance The current unemployment insurance scheme in China is a social insurance program created in the 1990s for urban workers. The government established a Re-employment Service Center, operated at the enterprise level, to provide employment services and unemployment benefits to laidoff workers. Workers can claim benefits for up to three years. Assistance to laid-off workers covered by Re-employment Service Center was provided jointly by government subsidies, the unemployment insurance fund, and enterprises (Zheng, 2008). The Re-employment Service Center paid workers’ individual pension, health insurance, and unemployment insurance contributions, as well as an allowance to cover their living costs. Benefits amount to 120%–150% of the local minimum basic living standard. Current institutional arrangements for unemployment insurance are set out in the State Council’s 1999 “Regulations on Unemployment Insurance.” The third phase of the development of unemployment insurance in China began that year. All workers in the urban areas were henceforth expected to be covered by unemployment insurance, with both employees and employers required to contribute to its financing. Employers contributed 2% of their total payroll and employees contributed 1% of their wages (Qian, 2017). By 2003, about 38% of urban workers were enrolled in unemployment insurance.3 Urban Social Assistance ( Dibao) The urban minimum livelihood guarantee (Dibao) is a national meanstested program to provide cash transfers to the urban poor based on a locally set minimum income level (i.e. Dibao line). This social assistance program can be traced back to 1993, when the Shanghai municipal government launched a means-tested minimum livelihood guarantee program called Dibao, setting the poverty line at RMB 120 per month

3 Calculated from data in CEIC database.

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and covering 7,680 people in Shanghai at that time. In 1999, Dibao was extended nationwide to provide a safety net for the urban poor, becoming the largest and most important of China’s social assistance programs (Gao, 2017). By the end of 2002, over 19 million people were included in the Dibao program. A total of 9.8 million former SOE employees and 5.5 million of their family members accounted for about 80% of the total beneficiaries of Dibao (China Association of Social Workers 2010).

The Chinese Welfare System Since the Early 2000s Since the early 2000s, new social programs have been initiated to cover rural and urban residents including pension, health insurance and social assistance programs. Pensions Since 2009, a rural pension scheme and a pension scheme covering urban residents who are not working in the formal sector have been initiated to cover those who are not covered by the basic pension system. In 2014, urban and rural resident pension plans merged into one single system (Fang & Feng, 2020). Residents aged 60 or above when the program was initiated are entitled to claim benefits without contributing to the program. Other residents can join the pension program by contributing a fixed premium, set by the local government.4 To keep the living standard of retirees at an acceptable level, between 2005 and 2018, the State Council increased the standard monthly benefits for retirees for fourteen years in succession. The average benefit level has been increased from RMB700 in 2005 to about RMB2,600 in 2018 (Fig. 2.2). Health Insurance A health insurance plan was introduced in 2007 for urban residents such as retirees, students, the self-employed, and people working in informal sectors, attracting 118 million enrollees within a year. For rural areas, a 4 http://www.gov.cn/zhengce/content/2014-02/26/content_8656.htm, accessed on 2 June 2021.

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3,000 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Fig. 2.2 The average benefit level of urban basic employee pensions, 2005– 2018 (RMB) (Source China Human Resources and Social Security Yearbook, various years)

new cooperative medical scheme (NCMS) was initiated in 2003, and 833 million enrollees were registered by the end of 2008 (Qian & Blomqvist, 2014). NCMS is managed by the local health bureau. Unlike the Basic Health Insurance Scheme (BHI), NCMS is a voluntary plan.5 To attract enrollment and to improve the benefits of NCMS, the central government has provided subsidies to the NCMS plan. It has also specified the (minimum) individual contribution level, as well as the amount of government subsidy. The subsidy is based on the condition that the local government has made a sufficient contribution (i.e., it is a matching grant). Local governments are however free to increase the government subsidy beyond the minimum level.

5 Local government may have incentive to encourage local residents to join social insurance plans. See Qian (2011).

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Social Assistance Since 2007, a rural version of Dibao has expanded dramatically and the number of beneficiaries in rural areas increased from 15 million in 2006 to about 54 million in 2013. Like that of the urban Dibao, the focus of the rural Dibao is absolute poverty. A temporary assistance program (linshi jiuzhu) was set up nationwide in 2014 to provide support for victims of accidents, natural disasters, and public health emergencies who may have difficulties accessing social assistance programs.6 Temporary assistance provided could be in the form of cash or in-kind. Poor households or individuals can apply for it and the local hukou is not necessary.7 The benefit period of the temporary assistance is short (usually no more than six months). Since the early 2000s, supplementary social assistance programs including medical, education, and housing assistance have been initiated (Gao et al., 2019). Since the 2010s, an old-age allowance system has been set up at the provincial level to provide funds to elderly persons in financial difficulties.8 The number of beneficiaries reached over 30 million by the end of 2018.9

Achievements of the Recent Round of Social Policy Reforms Social Insurance At the seventeenth party congress in 2007, universal social insurance coverage was established as one of China’s national policy goals for building a “moderately prosperous society” by 2020.10 The “obligatory targets” of coverage expansion of social insurance were set in the twelfth

6 http://www.gov.cn/zhengce/content/2014-10/24/content_9165.htm, accessed on 18 April 2021. 7 http://www.gov.cn/zhengce/content/2014-10/24/content_9165.htm, accessed on

18 April 2021. 8 http://www.mca.gov.cn/article/gk/jytabljggk/zxwyta/201911/20191100020879. shtml, accessed on 18 April 2021. 9 http://www.gov.cn/xinwen/2019-02/21/content_5367498.htm, accessed on 18 April 2021. 10 Xinhua News Agency, Accelerating the establishment of a social insurance system should focus on basic pension, basic health insurance and minimum livelihood guarantee, http://www.gov.cn/jrzg/2008-01/11/content_855699.htm, 12 January 2008, accessed 8 March, 2021.

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Five-Year Plan (FYP).11 In the twelfth FYP, coverage under the pension scheme for urban residents was pledged to reach 357 million people by 2015. The twelfth FYP also sets the target for the annual growth rate of health insurance enrollment to at least 3%. These targets have been achieved; the number of enrollees in the pension scheme for urban residents was 377 million in 2015, and the annual growth rate for health insurance enrollment was higher than 3%.12 The coverage rates of pension and health insurance reached 82% and 95%, respectively, in 2015.13 China’s unprecedented expansion of health and pension coverage was recognized with an award for outstanding achievement in social security (2017). There were 999 million and 1.36 billion enrollees in urban and rural pension and health insurance plans by the end of 2020.14 The coverage rates were 71.4% and 97.1%, based on China’s total population in 2020. Figures 2.3 and 2.4 show the changing numbers of enrollees and beneficiaries in the urban and rural resident pension plan and the urban basic employee pension plan respectively. Over the past few decades, the Chinese government has enacted a series of laws to support social insurance expansion, including the Labor Law (1994), the Labor Contract Law (2008), and the Social Insurance Law (2011). Recent research shows that Labor Contract Law has had a significant effect on the social insurance enrolment of migrant workers (Du

11 China’s National People’s Congress, China: 12th Five-Year Plan (2011–2015) for National Economic and Social Development. Green Growth Knowledge Platform, 1 January, https://policy.asiapacificenergy.org/node/37, accessed on 8 March 2021. 12 Outline of the 13th Five-Year Plan for the National Economic and Social Development of the People’s Republic of China, 17 March 2016, http://www.xinhuanet.com/ politics/2016lh/2016-03/17/c_1118366322_2.htm, accessed on 18 April 2021. 13 Notice of Ministry of Human Resource and Social Insurance on printing and distributing the Outline of the 13th Five-Year Plan for the development of human resource and social insurance, 6 July 2016, http://www.gov.cn/gongbao/content/2017/ content_5181097.htm, accessed on 18 April 2021. 14 https://www.thepaper.cn/newsDetail_forward_11325131, accessed on February 12, 2021.

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600 500 400 300 200 100 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 enrollees

beneficiaries

Fig. 2.3 The number of enrollees and beneficiaries in the urban and rural resident pension plan (millions), 2009–2020 (Source Statistical communiqué of Human Resources and Social Security, various years) 500 450 400 350 300 250 200 150 100 50 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 reƟred

total enrollees (employees+reƟred)

Fig. 2.4 The number of enrollees and retirees in the urban basic employee pension plan (millions), 2008–2020 (Source Statistical communiqué of Human Resources and Social Security, various years)

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80% 70% 60% 50% 40% 30% 20% 10% 0% 2020

2019

2018

2017

2016

2015

2014

health insurance

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

pension

unemployment insurance

Fig. 2.5 Urban basic employee pension, health insurance, and unemployment insurance coverage of urban workers in China (%), 2003–2020 (Source CEIC & Statistical communiqué of Human Resources and Social Security 2020 & Statistical Communiqué of the Development of Health Insurance 2020)

et al., 2019). In 2020, the draft of the social assistance law was circulated to solicit comments and suggestions.15 In recent decades, China has achieved significant advances in social insurance expansion (Qian et al., 2021). The coverage rate of social insurance in the urban labor market has increased significantly since 2003. Figure 2.5 shows that urban basic employee pension coverage for the urban labor force has been increased from about 42% in 2003 to over 69% in 2020. Urban basic health insurance and unemployment insurance coverage for the urban labor force increased from 29% and 37% in 2003 to 54% and 46% in 2020. Since 2015, civil servants and employees in public service units have been included in the public employee pension scheme (Fang & Feng, 2020). Besides the aggregate data, one can also verify the universal coverage via household surveys. Here, I use a nationwide survey data set, namely, the Chinese General Social Survey (CGSS). CGSS is a nationwide survey 15 http://www.gov.cn/xinwen/2020-09/08/content_5541388.htm, accessed on 18 April 2021.

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data set starting from year 2003, and the recent wave is 2019. Subjects in 100 or so counties/districts out of all counties/districts in China were surveyed. To see the expansion of social insurance across age cohorts since the early 2000s, I only include urban residents aged between 30 and 80 years in two waves, 2005 and 2015. Figures 2.6 and 2.7 show that coverage significantly increased for all age groups in 2015, compared to 2005. For health insurance, indeed, the coverage was almost universal across all age groups in 2015. For pensions, the coverage of the youngest cohorts (30–34 years old) was around 65% in 2015. The coverage increased with age, and the coverage rate was above 80% for people aged 60 and above. Besides coverage expansion, the benefit levels of these social programs have also increased. The State Council increased the standard of monthly benefits for retirees under the urban basic employee pension for fourteen years in succession, from RMB700 in 2005 to about RMB2,600 in 2018 (Fig. 2.2). However, the benefit level for retirees under the urban and rural resident pension plans was shallow. Figure 2.8 shows the minimum and average benefit levels in this program. The benefit level of resident pensions in average was about RMB 170, and the minimum level of a resident pension was RMB 93 in 2019. 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 30/34

35/39

40/44

45/49

50/54 2005

55/59

60/64

64/69

70/74

75/79

2015

Fig. 2.6 Pension coverage in urban China in CGSS across age cohort (%), 2005 and 2015 (Source CGSS)

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100% 90% 80% 70% 60% 50% 40% 30% 30/34

35/39

40/44

45/49

50/54

55/59

2005

60/64

64/69

70/74

75/79

2015

Fig. 2.7 Health insurance coverage in urban China in CGSS across age cohort (%), 2005 and 2015 (Source CGSS) 180 160 140 120 100 80 60 40 20 0 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

minimum level of urban and rural resident pension average urban and rural resident pension

Fig. 2.8 Monthly benefit level of urban and rural resident pensions, 2010–2019 (RMB) (Source MOHRSS website, various reports. Compiled by the author)

2

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800 700 600 500 400 300 200 100 0 2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Urban Dibao line

Rural Dibao line

Fig. 2.9 Dibao lines in Urban and Rural Areas (RMB), 2004–2020 (Source Ministry of Civil Affairs)

Social Assistance While the minimum income thresholds of Dibao have increased in both urban and rural areas (Fig. 2.9), the number of Dibao beneficiaries has been decreasing in recent years (Fig. 2.10). Dibao line was RMB 681 a month in 2020, compared to RMB 152 in 2004. Nevertheless, the total number of Dibao beneficiaries (in both urban and rural areas) decreased from over 70 million in the early 2010s to 44 million in 2020. Since July 2021, the rural and urban Dibao have been integrated.16

Fragmentation of China’s Welfare System Notwithstanding progress after the social policy reform, China’s social welfare system is still fragmented in several dimensions. The first fault line is household registration status (hukou) and locality. It was estimated that the welfare losses under the hukouHukou system have been

16 https://www.chinanews.com/gn/2021/07-28/9530478.shtml, September 2021.

accessed

on

5

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80 70 60 50 40 30 20 10

Urban Dibao

2020

2019

2018

2016

2017

2015

2014

2013

2012

2011

2010

2009

2008

2006

2007

2005

2004

2003

2002

2001

2000

1999

0

Rural Dibao

Fig. 2.10 The number of Dibao beneficiaries in urban and rural areas (millions), 1999–2020 (Source Ministry of Civil Affairs)

enormous (see, e.g., Whalley & Zhang, 2004). In the past few years, China has launched hukou reforms to support social insurance coverage expansion. For example, China consolidated two separate programs for rural and urban residents to form insurance schemes that apply to both urban and rural residents (pensions in 2014 and health insurance in 2016, respectively). In April 2020, the Central Committee of the Communist Party of China and the State Council jointly released a guideline to facilitate efficient allocation of production factors, including land, labor, technological knowledge, capital, and data by letting the market play a bigger role.17 The guideline indicates further deregulation of the labor market. With the exception of a few megacities, domestic migrants will be granted residential status to enable equal access to public services in education and health care, and restrictions on migrant workers’ obtaining hukou will also be removed. All residents including those without a local hukou will have access to public services.

17 http://www.gov.cn/zhengce/2020-04/09/content_5500622.htm, accessed on 31 January 2021.

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1,000 900 800 700 600 500 400 300 200 100 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0

Urban PopulaƟon (million)

PopulaƟon with urban Hukou (million)

Fig. 2.11 The urbanization and household registration system (Hukou) in China, 1997–2020 (millions) (Source China Statistical Yearbook, various years and the seventh population census, 2020)

However, the hukou system still regulates migration between cities and between rural and urban areas. Figure 2.11 shows that the gap between the number of urban residents and residents with urban hukou has been huge in recent years (e.g., over 260 million in 2020). Figure 2.12 shows that there are over 285 million rural migrant workers in 2020 in China who work outside where their hukou is located, slightly decreased from 290 million in 2019. The number of rural workers leaving their hometowns (waichu nongmingong ) was over 169 million in 2020, compared to 174 million in 2019. Second, related, social insurance schemes, managed by local governments at and above the county level, vary across regions in terms of their scope, coverage, and benefit levels (Gao et al., 2013; Mok & Qian, 2019; Ngok, 2016). For example, for urban resident health insurance enrollees in Shanghai, inpatient claims were applicable to expenses in excess of RMB1,500 up to a maximum of RMB 550,000 in 2020. Within this range, the reimbursement rate was 50%-70%.18 In Xi’an city, while the

18 https://www.163.com/dy/article/FT3B485K05148I86.html, accessed on 3 June 2021.

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350 300 250 200 150 100 50 0 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Migrant workers in total (i.e. the number of workers with agriculture hukou, millions ) Rural migrant workers (as the number of migrant workers who have leŌ their hometown, millions)

Fig. 2.12 Number of migrant workers in China, 2010–2020, millions (Source National Bureau of Statistics, Monitoring Report on Migrant Workers, various years)

reimbursement rate is similar, the ceiling for enrollees under urban resident health insurance was set at only RMB 200,000 in 2020, much lower than that in Shanghai.19 The third fault line relates to variations in the social insurance regulations applicable to different forms of employment. China’s social insurance system is structured as a tiered system based on the form of employment. Urban workers with formal employment, residents, and workers in the informal sector are enrolled into different social insurance schemes subject to different policies on contributions and benefits (Mok & Qian, 2019; Ngok, 2016; Ringen & Ngok, 2017). For example, flexible employed or self-employed can enroll with the urban employee pension and health insurance but with different contribution rates from urban formal sector workers. Further, based on social insurance law,

19 https://www.sohu.com/a/399651443_100300547, accessed 3 June 2021.

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Table 2.1 Rates of contributions to social insurance programs in China Program

Contribution

Insurance programs for urban employees Employer (payroll) (%) Pension ≤ 16 Health Insurance 6 Unemployment