This paper conducts an inquiry into institutional and operational shortfalls and possible remedies
in the new Chinese pension system after the reform of 1997.
The reform in 1997 could be considered of as the big ban in Chinese pension system. It detached pension system from the declining state-owned enterprises, accomplished inclusion of the rapidly increasing private sector employees and converted the old pay-as-you-go financing plan into partial reserve financing plan. Thereby it institutionally responds precisely to the tremendous challenges prompted by continuing changes in economic structure since starting an open economy and prospective changes in an aging society. In fact, the World Bank praises the reform as the greatest success since the pension reform in Chile.
However, the present situation is marked by severe operational shortfalls caused by failures in the
system design. The main problems the system now faces can be summarized as
1) the existence of mere nominal accounts in the reserve financing plan rooted in a lack of
consideration for the resolution of invisible obligations inherited form the pay-as-you-go financing plan,
2) diversion and misappropriation of funds made possible by defects in the administrative
structure,
3) financial stringency resulting out of an overly optimistic outlook in financing scheme,
4) low participation rate effected by several environmental and organizational factors, and
5) entire insensibility to the influx of rural population, which urgently demands for an acute
resolution.
After a thorough analysis of these shortfalls and remedies this paper closes with some prospects
and suggestions for future developments and pension policy.
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