Impact of the crisis on China

Because China has a relatively closed financial system, it is less affected by the financial crisis. Nevertheless the slowdown of the world economy and sinking demand for goods from many of its trading partners have a major negative effect on Chinese economic growth in general, and on export-oriented industries in particular. (Read more)

Crisis responses in general

The Chinese government believes that increasing government spending is the most active, direct and efficient way to increase domestic demand, and economists believe China's US$2 trillion foreign reserves current-account surplus and budget surplus offer the government lots of room to do so. In November 2008 a CNY 4 trillion (US$585.5 billion) stimulus package was announced. Additionally, the premier proposed a budgeted fiscal deficit of CNY950 billion (US$139 billion) for 2009, a record high in six decades and nearly three times the last record of CNY319.8 billion, set in 2003. The deficit accounted for nearly 3 percent of the gross domestic product (GDP). (Read more)

First results of the fiscal stimulus

Social security and the crisis in China

China established a social security system in the 1980s, and has gradually worked at improving it. Although coverage for the urban population has increased, most of the rural population and rural migrant workers are still not covered. Overall, the system is characterized by low benefits, a narrow scope of coverage, an urban-rural divide and fragmentation into different schemes. At the same time, the population is aging rapidly, urbanization is accelerating, employment is diversified and the distribution of income is uneven. There are therefore a number of challenges to China's social security system – even without the crisis. (Read more)

Pensions for the rural population

Protection for rural migrant workers

Anti-poverty programme enlarged

Health care system reform

Measures for the long-term sustainability of the social security fund
 

Conclusions

International experience shows that economic crises are the time to expand the coverage of social security; China is therefore on the right track. Compared to 2008, the state budget allocated to social security has increased by CNY43.9 billion or more than 17 percent. Given the urban-rural divide of the Chinese social security system, this should be seen as a step towards gradually extending pensions to rural and migrant workers who have not had sufficient insurance coverage so far. Similarly, the extension of health coverage is a positive development.

While numerous exemptions from social security contributions and taxes have been made for employers, it is crucial that China should take measures aimed at making its social security fund sustainable in the long term. A social security system can be an important pillar to stabilize society, stimulate domestic demand and promote economic growth, and this may be proven again by China in the current economic crisis.