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Widen social security net to cover all, say experts

By Wang Bo (China Daily)
Updated: 2009-02-27 10:59

China has the fiscal capacity to bring all its citizens under the social security umbrella by 2020, according to the experts of a major domestic think-tank.

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Based on the price level in 2007, the government should invest about 5.74 trillion yuan ($839 billion) out of its total fiscal revenues in 2020 to establish a complete social security network, said a report released yesterday by the China Development Research Foundation.

"China can afford such a payout, as its welfare spending accounts for just 27 percent of the government fiscal expenditure now," said Lu Mai, secretary-general of China Development Research Foundation. "It still has much room to improve the welfare spending proportion."

To that end, however, it is critical for China to maintain an average GDP growth of above 8 percent in the coming decade, which is highly possible, he said. "It means it has adequate economic might to establish such a comprehensive safety net."

The report estimates that in order to achieve the goal by 2020, the country's fiscal revenue should be 21 percent of its total GDP by 2011 and ultimately increase to 26 percent. The ratio of welfare spending to fiscal expenditure should increase to 33 percent before 2012 and touch 35 percent by 2020.

If the Chinese economy can grow at a rate of more than 8 percent on average, it would ensure that fiscal revenues also grow, said experts.

China has taken a hard hit late last year due to the lackluster overseas demand as a result of the global financial tsunami. Subsequently the country had to redirect its pattern of growth to domestic demand from the previous reliance on exports.

Many economists have called for improving the social welfare system to provide a greater sense of security. This would ensure that people save less and spend more to boost domestic demand. However, there have been fierce debates in the domestic academic circles on whether China can afford the huge spending on a complete social security network to cover all of its 1.3 billion people.

With the economy growing at an annual rate of 9.8 percent in the past 30 years, Tang Min, deputy secretary-general of China Development Research Foundation, said China has the fiscal prowess to invest in such a costly network.

"Building a universally accessible social welfare system will lay a solid foundation for restructuring China's economic development model," Tang said.

Until last year China's medical insurance system covered about 1 billion people, including 180 million in the urban medical insurance system and another 814 million rural residents covered by the less expensive rural cooperative medical insurance system.

The report suggested that a more inclusive social security network be established, which would include a more extensive compulsory education system that prolongs the current nine-year system to 11 years, a pension system as well as the medical insurance regime.

The suggested network would also offer low-priced welfare housing for all.