China’s ageing population is creating a new debt crisis for Beijing as pension shortfall widens
Gap between workers’ contributions and benefits paid out set to reach 600 billion yuan this year and 890 billion yuan in 2020, analyst says
China’s pension shortfall is emerging as the next big challenge for policymakers as they intensify their years-long campaign to keep rising debt from derailing the economy.
Ageing in the world’s most populous country means pension contributions by workers no longer cover retiree benefits, forcing the government to fill that gap since at least 2014. Pension expenses rose 11.6 per cent to 2.58 trillion yuan (US$409.4 billion) in 2016, leaving the government a 429.1 billion yuan tab to cover the shortfall, according to the latest available data from the finance ministry.
That shortfall will reach 600 billion yuan this year and 890 billion yuan in 2020 if the system is not reformed, according to Wang Dehua, a researcher at the National Academy of Economic Strategy in Beijing.
Enodo Economics in London, which has advised policymakers on the matter, forecast last year that it could soar to 1.2 trillion yuan by next year. The finance ministry does not release estimates.
“China’s biggest fiscal risk is pension risk,” said Wang, whose institute is under the Chinese Academy of Social Sciences, the government’s top think tank. “There are big problems in the pension system if it can only keep operating with large fiscal subsidies.”