China's Fiscal Expenditure on Social Security since 1978

Article excerpt

Social security, a primary aspect and principal part of modern government fiscal and public expenditure, plays an important role in ameliorating poverty, improving social well-being and safeguarding social stability, equality and justice. Due to the fact that different counties are at varying stages or modes of development, the total amount, structure, scope, focus and working mechanisms of social security expenditure appear to differ across counties.

The concept of social security varies worldwide. In European welfare states, social security refers to social protection or social expenditure, while in the United States, social security means all types of poverty alleviation programmes and security expenditure directly covered by government finance. In China, social security is viewed as a broad concept covering social assistance, social insurance and social welfare, but excluding basic areas such as housing, public health service and education. This paper breaks down the scope of social security expenditures in China into three grades. The narrow grade (Grade 1) is used in the current government fiscal social security expenditures, including expenditures on pensions and social welfare, expenditures on relief, retiree expenditures of administration and public institutions and social security subsidy expenditures. Grade 2 is Grade 1 combined with social insurance fund expenditures. Grade 3 is Grade 2 combined with government fiscal expenditures on education and health.

China's social security system has undergone major changes since the late 1970s. In the 1980s, social security provided for employees in state-owned enterprises, and government organs and public institutions constituted the principal part of the social security system. Government finance offered only subsistence security to the absolute poor in the strict sense and provided limited social welfare to beneficiaries of preferential policy. In 1992, the expenditure on the social pension fund, welfare and assistance totalled 6.6 billion yuan, which was 1.78 per cent of the entire fiscal expenditure and 0.25 per cent of the GDP. (1)

From the 1990s to the beginning of the 2000s when the focus was on the establishment of the socialist market economy and pilot reform, China had gradually set up the framework of a modern social security system, including the minimum subsistence security system and social insurance system comprising basic old-age insurance for urban workers, basic medical insurance, unemployment insurance, work injury insurance and maternity insurance. Despite the fact that the insurance payment mechanism and shared multiparty responsibility were introduced in the social insurance system, the amount and share of government fiscal expenditure on social security have been constantly expanding due to the continuous expansion in social security coverage and the rise of social security benefit levels. In 2002, the Chinese government's fiscal expenditure on social pensions, welfare and assistance reached 37.3 billion yuan.

Together with the pensions for retirees of the administrative entities and public institutions and the expenditure on different types of social security allowance, the total fiscal expenditure on social security in China hit 263.6 billion yuan, which was 10.95 per cent of the entire fiscal expenditure in the same year. Meanwhile, 347.2 billion yuan was financed by the growing social insurance fund (the revenue of the social insurance fund in 2002 totalled 404.87 billion yuan), which became the main source of the social security expenditure.

The 16th Communist Party of China (CPC) National Congress convened in 2002. The new leadership, Secretary-General Hu Jintao and Premier Wen Jiabao in particular, attached greater importance to improving people's livelihoods, introduced the Scientific Outlook on Development and proposed building a harmonious society. During the first half of 2003, the outbreak of SARS accentuated the problem of China's unbalanced development favouring economic over social, urban over rural, and coastal regions over inland regions. …