China Slowdown Deepens Looming Pension Crisis

Shortfall most threatens struggling industrial areas, where retirees’ hopes are dimming

Railway engineer Zhao Zhonghao, 54 years old, is due to retire next year but is concerned his pension will fall short.
Railway engineer Zhao Zhonghao, 54 years old, is due to retire next year but is concerned his pension will fall short. PHOTO: MARK MAGNIER/THE WALL STREET JOURNAL
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Nov. 3, 2016 5:32 a.m. ET

SHENYANG, China—Here in the northeast rust belt, ailing industries are increasingly less able to pay into plans for retiring workers, as a slowing economy hastens a pension crisis.

“It used to be the system took care of you,” said Zhao Zhonghao, a railway engineer in Shenyang who began his career shoveling coal. The 54-year-old is revising his retirement dream of painting, traveling and reading the classics, concerned his pension will be slashed. “I have to be prepared for that,” he said.

China’s hopes of growing rich before it grows old are dimming. The burden of supporting each person over 65 is now shared by more than seven workers. But that will drop to just two people in 35 years, according to United Nations data, or even fewer than that, the World Bank says.

A low retirement age and a one-child policy in place for 35 years contributed to China’s demographic predicament. Beijing this year began allowing couples to have two children, but few believe the shift will significantly lift a sagging birthrate.

Even as Beijing enhances the safety net for its aging population, local governments have given companies some leeway on pensions. When Heilongjiang Longmay Mining Group received a $298 million bailout last year to prevent the dislocation of its 200,000 workers, Heilongjiang province let the company delay its pension obligations, according to Moody’s Investors Service.

Mr. Zhao’s employer, China Railway Corp., has shed 400,000 of its 2.1 million workers since 2002 and hasn’t posted a profit for years. In January, more than 1,000 rail workers and retirees in the northeastern city of Harbin took to the streets over what they said were missing pension contributions and wages.

Mr. Zhao can’t make sense of statements from his employer that say he paid only 2.8 yuan in monthly premiums for more than a decade, waving printouts of wage records to show he paid almost twice that. The difference could reduce his monthly pension by 15% or more from the $620 a month he had expected.

“Pretty much everyone in my work unit has the same problem,” he said. Officials at the Shenyang subsidiary of China Railway referred questions to the parent company, which didn’t respond.

The Chinese government has sought to assuage fears around retirement. “The government can promise pensions for its citizens,” Premier Li Keqiang told reporters in March, adding that China had a $50.3 billion pension surplus in 2015.

The Chinese Academy of Social Sciences, the country’s chief think tank, predicts China’s pension surplus will turn into a deficit by 2023. By 2050, it predicts, the cumulative deficit will be $118 trillion barring significant policy changes.

With pension funds administered locally, the pain will come quicker to the northeast. While prosperous southern Guangdong province has more than 50 months’ worth of pension payout in its fund, northeastern Heilongjiang has a single month, the academy said in a July report.

Plans to combine provincial funds into a less-risky national pool like the U.S. social-security system face resistance from wealthier provinces, economists say.

It doesn’t help that young people are leaving the northeast, which has experienced net population outflow for more than two decades, according to a government report last month.

Beijing says next year it will roll out a plan to raise retirement-age thresholds from the current 60 for men and 55 for women (some groups leave work even earlier). But the proposal faces strong resistance and is expected to take years to implement.

The government is also expected this year to redirect up to $59.2 billion in pension funds from low-yielding bonds and bank accounts into stocks. That could yield higher returns but with greater risk in a market sometimes likened to a casino.

Another step underway—of keen interest to foreign asset managers—is the expansion of a 401(k)-like program funded by companies and individuals. In wealthier countries, a big draw for such plans is the tax benefit. That matters less in China, where a significant percentage of people don’t pay income tax, said World Bank economist Philip O’Keefe, co-author of a book on China’s pension system.

Xiatun village resident Lin Jialiang, 49, says he barely gets by farming corn. ‘How can I afford to pay into a pension?’ he asks.
Xiatun village resident Lin Jialiang, 49, says he barely gets by farming corn. ‘How can I afford to pay into a pension?’ he asks. PHOTO: PEI LI/THE WALL STREET JOURNAL
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Finance and welfare officials didn’t respond to questions.

As economic growth sputters, pensions have increasingly fallen prey to corruption or other irregularities.

In northeastern Xiatun village, village bookkeeper Li Jie was convicted last year of embezzling $3,800 in pension funds. “That may not seem like much to city dwellers, but it’s a lot for us farmers,” said Su Baoxiu, his successor. Mr. Li couldn’t be reached for comment.

Many in Xiatun as in other rural areas have no pension at all. “I’m barely surviving on farming,” said Lin Jialiang, 49, standing beside a steel mesh hopper holding his entire livelihood: this year’s harvest of corn. “How can I afford to pay into a pension?”

But unlike farmers, China’s “iron rice bowl” workers—those employed by state companies like China Railway—used to have their old age secured.

“There’s a real loss of trust,” said Mr. Zhao, whose father was also a rail worker during the 1960s and ’70s. “If my father heard about these problems now, he’d never believe it.”

Write to Mark Magnier at mark.magnier@wsj.com

http://www.wsj.com/articles/china-slowdown-deepens-looming-pension-crisis-1478165548

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One Response to “China Slowdown Deepens Looming Pension Crisis”

  1. daveyone1 Says:

    Reblogged this on World Peace Forum.

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