Why Millions of Young Chinese Are Refusing to Make Pension Payments

Bloomberg, Audio Studios, podcasts, radio news.

This is Gao Punchin. He's twenty two, just graduated from college and lives in China's southern city of Shenzen. Gao wants to become a full time social media influencer. He posts video blogs of his life and does freelance work on the side too. He makes about one thousand dollars a month, a moderate income in Shenzen, but Gao still

Getaway should she set.

But to afford the occasional splurge, Gao decided to scrap one major expense from his budget, his pension payments. It's about two hundred dollars, and he told Bloomberg that that's a fifth of his monthly income, money that Gao says he'd rather spend enjoying himself.

What's all the cases union? Yoo? Uh now someone some one question one not true? Your Michael Paul Bahoma.

Gao says most of his friends don't pay into the pension fund either if their line of work like freelancing, makes the payments voluntary. And across China there are millions like Gao who are boycotting the pension plan.

Based on Bloomberg's calculation of data from Chinese think tank, tens of millions of China's young workers have suspended contribution to Chinese pension plans, and that was additional pressure on a system that's already wobbly.

Chenway Jong is a Bloomberg editor based in Hong Kong.

China's basic pension fund is at the risk of drying up by twenty thirty five, and the government is not able to provide the most basic social security. That risk undermining the publicist faith in the Common Party and its social contract with the people, and it could be a taking time bomb, posing us throughout to China's social stability.

Welcome to The Big Take Asia from Bloomberg News. I'm Wanha. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever shifting region. Today on the show, why is China's pension fund and danger of drying up? What are the risks to the country's already struggling economy and the credibility of the Communist Party. Like most things in China, the size of the Chinese pension system is daggering.

The first one is the government funded basic pension system. This is what we talk about when we refer to the pension system. It currently covers one point one billion people, and that's around eighty percent of the entire population.

If you work in China with a formal job, you're required by law to contribute to this basic pension plan.

So if I work for a company insite mainland China, every month, I'm supposed to pay about eight percent of my income to the pension system, and in the same token, my employer is supposed to pay sixteen percent of my

Okay, so I got that. What's the second pillar.

The second pillar is called the voluntary cooperate pension and it's similar to the four to one K plan in the US. It only covers thirty one million business workers and with a little over three trillion women in assets.

And what's the difference between the two pension systems.

So the main difference is the volunteer croper pension is set up by companies for their employees and by the time the employees retire, they will mostly be able to destroy every single penny that the company put in there for them. But the basic pension system, you don't really know how much money you will be withdrawing by the time you retire, and there's no guarantee you will be getting every penny out of everything that you put in.

Workers in China used to enjoy social welfare that covered them from cradle to grave, guaranteed by state owned enterprises, but that policy was upended after China's economy opened up in the seven and for decades, most people rely on the Basic pension Plan, the first and the largest pillar, while only a small number of companies offer voluntary corporate pension plans.

I think in the past time when times are good, when China wasn't in such a dire demographic situation, there's hope that government would be able to give you the money back. And on top of that, for a really long time, the basic pension system is people's only option.

And chen way, what about that last pillar of the pension system. What's that about?

So the third pillar is still very young. It's called the volunteer Individual Pension System. The government only started testing it in twenty twenty two, and it's similar to the individual retirement accounts in the US. So you can contribute to text sheltered saving fund and then can pick whatever investment that you want to put the money in. So far, only a little over sixty million people signed up, but less than a third people have actually putting any deposit.

Okay, so we've got the mandatory government pension plan, voluntary corporate pension plan and voluntary individual pension plan. How are these three pensions doing right now?

So all of the three pillars of China's pension fund are underfunded. According to the Chinese Academy of Social Sciences, the savings in the biggest pillar the Chinese basic pension system will peak at seven trillion in twenty twenty seven before shrinking sharply, and by twenty thirty five, the basic pension system is at the risk of drawing up even if the government steps in.

One of the main reasons all of these pension plans are underfunded is because of China's falling population. For decades, China imposed a strict one child policy that only allowed each couple to have one kid.

Now, after decades of successful family plan policy, China has created this unique four to one family structure, which means that four grandparents will be taking care of one precious child. But if you reverse the structure, we're looking at an entire generation of people having to take care of two parents and four grandparents.

That's a lot of pressure on the younger generation, who now make up the workforce. They're expected to help provide for the growing number of retirees. But some people like Galpun Chung, are opting out of the pension system altogether.

And on top of that, many of us are delaying marriage, delaying having children, and a lot of people also say they don't want to have children at all, and that's going to be a problem for the future demographics. We're looking at a rapidly shrinking population, which means not enough labor will be entering the job market and putting money into the pension funding.

To government data, more than twenty million workers will retire each year over the next decade in China, and by twenty thirty five, the number of Chinese citizens over sixty is forecast a top four hundred million. That's more than the population of the US and Canada combined.

This is simple mass. On one hand, more old people will be retiring, and on the other hand, there will be less people being born. In China, the population has been shrinking since twenty twenty two, and the United Nations projects that China's population could shrink to half of its current size by the end of the century.

Now, Chinwai. Problems like aging populations are faced by many developed nations in Europe and the Americas. Even the US Social Security Trust Fund faces insolvency by twenty thirty five. So how is China's pension fund situation any different?

So On one hand, China has way more old people than the US and Canada. The ratio owe to working age people in China is forecast to soar. And on the other hand, China's pension fund is mostly dependent on the basic pension fund, whereas US and Canada, their pension system is more diverse and more people are enrolled in the second pillar and third pillar.

After the break, What the Chinese government is doing to prevent the world's largest social security network from running dry and what could happen if those efforts fail. China's rapidly aging population is putting a lot of pressure on the country's policy makers. The government is throwing everything at the

September, Beijing took a major step last September to shore up the system by delaying retirement age for up to five years, and the shift is the first of its kind in nearly five decades. The policy whenning to effect on January the first, twenty twenty five.

The new policy up to the retirement age for men to sixty three from sixty and for women to fifty five years old from fifty. The policy shift has triggered an outpouring of anger on social media, with many complaining about the sluggish job market. Goo the blogger we heard earlier, also says the pension plan isn't sustainable.

So looking at postponing retirement age, Gao is very upset and he's asking questions like why do I have to work for so much longer than my parents' generation? And how much money do I put into the system? The big problem for Gao is how much money is he actually going to get by the time he retired. And Gao is not the only one who thinks this way. According to a Chinese Academy of Social Sciences report, about a fifth of urban employees did not contribute to the system in recent years.

Those were mostly migrant workers. Thirty eight million people stopped payment in twenty thirteen alone. That also includes employees of businesses that suspended contributions due to financial difficulties, Chinwai. What's at stake here to China's economy and its government. If the pension fund does run dry.

If the government is not able to provide even the most basic social security, it's going to undermine the public's faith in the system, and it can create more opportunities for social unrest. And what's worse is that young people are going to lose hope of the government and they're not going to be motivated to work hard and fight for the economic growth of the country.

Mack and shinzen Gow says he doesn't see the point of paying into the pension fund with so much uncertainty.

My parents could have retired last year or the year before, but now because of the policy change, they have to work longer and pay more into the pension fus and we don't even know if they can get that money back. To put it bluntly that if they can live long enough to see that they even come. China has one point three billion people. If everyone retires at a later age,

This is The Big Take Asia from Bloomberg News. I'm one ha. This episode was produced by Young Young, Naomi Mum and Jessica Beck. It was mixed by Amr Sultan and sound designed by Jessica and fact checked by Young. It was edited by Aaron Edwards, Luluchen and Tracy Samuelson. There was additional reporting by Ding Ming, John and Charlotte Yang.