Problems With China’s Social Safety Net

Jan 27, 2026 - 11:00 Updated: Jan 27, 2026 - 10:48

Commentary

With the property crisis continuing to weigh on China’s economy and American and European trade policies challenging China’s export machine, Beijing has increasingly turned to domestic consumption as an engine of economic growth.

The authorities, to encourage people to buy new, have implemented policies subsidizing trade-ins of cars and household appliances. Recent meetings of the Central Committee of the Chinese Communist Party implicitly acknowledged the failure of these trade-in policies by redoubling the regime’s commitment to revitalizing consumer spending.

As is always the case with Communist Party conferences—whether in China or elsewhere—this one produced more rhetoric about commitments than specific policy steps. One proposal, however, was specific enough. It noted that reform of China’s social safety net would encourage greater household spending by giving working- and middle-class Chinese a greater sense of security. It is not clear that such reform would work, but such an effort would face significant impediments.

There can be little doubt that China’s present social safety net needs enlargement and reform. Even with earlier efforts at improvement, China’s system lags behind all but the poorest countries. To be sure, China offers the same kinds of benefits as most developed countries do—state-administered pensions, for instance, child-care allowances, single-parent support, direct benefits to low-income households, medical benefits, unemployment insurance, and the like.

However, the amount of coverage falls short. China’s state pension array covers 90 percent of the country’s adult population, but at a much less generous level than most other developed economies. Meanwhile, only half of the working population is covered by unemployment insurance, and a mere 15 percent of workers are covered by what Americans refer to as “workers’ compensation.”

According to data from the Organization for Economic Cooperation and Development (OECD) and Beijing’s National Bureau of Statistics, China spends just more than 9 percent of its gross domestic product (GDP) on these social functions. That is a higher percentage than in the world’s poorest countries, but it trails what the OECD designates as “upper-middle-income countries.”

Turkey, for instance, spends fully 10 percent of its GDP on social services, Chile spends almost 13 percent, and Colombia, hardly a rich nation, spends more than 14 percent. The difference of a few percentage points of GDP may seem small on a statistical table, but it can make a huge difference in a population’s sense of security and willingness to spend.

A job fair in Shenyang, Liaoning Province, China, on Oct. 22, 2024. China’s National Bureau of Statistics reported that the urban youth unemployment rate (excluding students) fluctuated between 13.2 percent and 18.8 percent from December 2023 to March 2025. STR/AFP via Getty Images

Against the clear need to improve China’s social safety net and thereby gain a more active consumer sector, Beijing faces some significant impediments. One is the culture of the Chinese Communist Party, at least its leader, Xi Jinping.

In response to any movement to increase the system’s generosity, Xi made his position clear in a 2021 speech. There, he conceded that the country should “guarantee basic needs,” but “should not provide excessive guarantees in order not to fall into the trap of ‘welfarism’ that encourages laziness.” And he meant what he said. Since that speech, spending on these kinds of social services never reclaimed the levels averaged during the 10 years preceding Xi’s remarks.

In addition to Party attitudes, there is also the long-standing Chinese preference for saving. Very long-term data is unreliable at best, and it is otherwise impossible to separate the effects of this cultural preference from other influences, including Pary preferences, but it is clear that events in China since the COVID-19 pandemic have instilled a bias among households toward saving over spending.

As was the case worldwide in 2020, lockdowns and quarantines interrupted income flows. So also did the zero-COVID policies pursued by the regime in Beijing for over a year after the pandemic lifted. Initially, savings rates fell, as households had to spend a larger part of their reduced incomes to support their lifestyles.

But thereafter, the feelings of insecurity that grew out of that period have kept savings rates high. So also has the property crisis, which, by depressing real estate values, has cut into household wealth and encouraged people to save in order to rebuild what they had lost in the value of their homes. These pressures naturally raise questions of whether an improved social safety net will produce the kind of spending Beijing needs to support the economy.

While such questions may hold back the expansions in social services that Beijing is contemplating, any effort to improve the country’s social safety net also faces significant financial constraints. In large part, these stem from China’s demographic problems. Because China has experienced low fertility rates for decades, fewer young people are now entering the workforce than are needed to replace the large segment of the country’s workers who are retiring.

In other words, the number of workers paying into pension schemes and other social services is declining relative to the number of Chinese who will be drawing on these services. The so-called dependency ratio—the share of the population at or near retirement age—is expected to rise from about 18 percent at present to more than 26 percent by 2030.

This circumstance places a huge burden on the slimmed-down working population and also a major constraint on how generous Beijing can be with pension and other benefits, even if Xi Jinping and the Party could overcome their fears of “welfarism.”

Beyond financial and cultural constraints, the extreme complexity of China’s social service arrangements would pose significant challenges for reform efforts. It would take a book-length treatment to describe the seemingly endless layers of benefits and qualifications implicit in China’s structures. Still, a brief look at pension arrangements should give a sense of the complexities involved.

China today has basically three different state pension systems. One is for public employees. It is the most generous of the three and is financed by a 16 percent levy on employers and an 8 percent levy on employees. The system covers just under 6 percent of all workers under pension schemes.

Much less generous is what Beijing refers to as Basic Old-Age Insurance for Urban Employees. This scheme is financed by the same levies on employers and employees as the public employees’ scheme. This second arrangement covers about 44 percent of all those workers under pension schemes.

The least generous is what Beijing calls the Basic Old-Age Insurance for Urban and Rural Residents. This program covers the balance of workers and has no dedicated source of financing. As of 2024, the most recent period for which data are available, the regime subsidized slightly more than 20 percent of the expenses of these programs. Health insurance is equally complex and stratified.

As should be clear, China has a pressing need to enlarge its social safety net, especially in the areas of unemployment insurance and workers’ compensation. At the same time, it has limited demographic and financial resources to take such steps. Even if it could somehow raise the needed funds, the system’s complexities present a formidable array of impediments. And finally, the population’s inclination to save might blunt the ultimate economic effects.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.