The Chinese Pension Fund System

Mainland China has a rapidly aging population. This is attributable to two main factors - the one-child policy plus substantial improvements in life expectancy leading to a rapidly deteriorating dependency ratio. The issue of China's aging population first attracted attention in 1982, following the country's third population census. Official projections indicated that China's population was aging faster than in almost any other country and the ratio of retirees to workers was deteriorating more seriously than elsewhere.

China's life expectancy has improved dramatically over the past 50 years. Today, the average life expectancy is 71 years, compared to 50 years in 1949 (male and female combined). At the same time, the one-child policy has been rigorously applied in the urban sector of China since 1979. Quite simply, this policy is arguably the most significant social experiment ever. The policy is, however, modified in its application in rural China and with ethnic minorities.

The so-called 1-2-4 phenomenon, which stands for one child, two parents and four grandparents, is becoming apparent in China. In other words, one child will enter the workforce to take care of two parents and four grandparents. The Chinese government is fully aware of its aging population, and the financial burden being created to provide and care for the elderly. It is inevitable that China's pension system will need to go through significant changes. It must also be appreciated that the Chinese pension reforms are an integral part of the overall economic reforms and the development of China's capital markets.