Bigger Problems
Narrowly speaking, the pension issue itself still may be fixable; it’s effectively a policy transmission problem. There’s enough money floating around, at least for the time being; China just needs to iron out major kinks in the system to get the funds where they’re needed. Toward this end, it has initiated some Hukou reforms, including new measures making it somewhat easier for migrant workers to register in second- and third-tier cities (where the government wants more workers to move anyway). It’s gradually doing away with family planning controls. It’s forcing state-owned enterprises to transfer 10 percent of their shares to government pension funds, while also allowing the funds to start investing overseas. Meanwhile, China has been taking steps toward more streamlined, centralized pension systems. On Jan. 1, for example, it created a national contributions pool and transferred responsibility for collections away from local governments, paving the way for the provincial transfers announced last week. To soothe disaffected PLA veterans, it launched a national-level veterans affairs administration last year.
China’s situation is not entirely unique. U.S. Social Security is likewise facing a funding shortfall stemming, in part, from demographics. And in nearly every country, wealthier regions are forced to subsidize livelihoods in poorer ones. In 2015, New York received 83 cents for every dollar its taxpayers sent to Washington, while Mississippi got $2.13.
But two broader challenges highlighted by the pension crisis are particularly intractable in China. One is the central government’s historical struggle to keep the wealthier coastal regions aligned with the rest of China – one of the country’s core geopolitical imperatives. The more acute coast-interior disparities become, the more wealth the coasts will be asked to transfer to the interior, and the more coastal resistance to Beijing’s writ there’s likely to be.
The second is the scope of the grand bargain the Communist Party has made with the Chinese public – and the extraordinary degree of risk embedded in this social contract. Essentially, Beijing gets full rights to micromanage the Chinese people. In exchange, it takes on full responsibility for the welfare of the people. In other words, when the state demanded they do so, hundreds of millions of Chinese citizens gave up the right to have multiple children who, in keeping with core Chinese values, would see to their care in their golden years. Now, they’re finding the state may force them to spend these years destitute and alone. When Beijing scaled back the state sector, hundreds of millions left the interior to work in manufacturing on the coasts, propelling China toward untold wealth and global influence. Now, they’re finding that the state has neglected to make those who’ve gotten rich off their labor contribute their share to the social safety net – and that Hukou, a system designed for social control, is preventing them from getting what’s theirs.
Risky Bargain
Beijing can make a persuasive enough case that an economic slowdown is inevitable due to forces beyond its control. It’s capable of lowering public expectations of infinite growth and deflecting the responsibility of party mismanagement for the hard times to come. Xi and other senior leaders are constantly warning that China is not yet rich, that the project of national rejuvenation means constant preparation for hard times ahead. But Beijing cannot easily explain away problems plainly rooted in policy myopia, corruption and systemic dysfunction. And polls routinely show that what Chinese people want most from the party is not a headlong pursuit of national prosperity, but rather clean and responsive governance tailored to preserving the grand bargain.
This is why, under Xi, Beijing’s emphasis has shifted toward things like “quality growth,” pollution, corruption and social welfare. Xi has approached these sorts of issues with a heavy hand, focusing primarily on purifying the system of corrupt and recalcitrant elements. This is, in part, because so many other factors darkening China’s outlook are outside his control. He also presumably realizes that, as China’s external woes intensify, the party will need to prove that the power it has appropriated from the people is being wielded in service of their demands.
Ironically, though, this has meant strengthening the role of what Beijing can most directly control – the machinery of the state – and further narrowing space for political, civil and economic freedoms. Under Xi, Beijing has been strengthening state-owned enterprises, centralizing the bureaucracy, embedding party watchdogs at private firms and exploring new ways to supervise society. This, in turn, means the state is implicitly agreeing to shoulder ever more responsibility for the public’s welfare – and more of the public’s ire when it falls short.
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