III. The Establishment of a Social Security System

In order to promote economic development and social stability, and to gradually raise the living standards and social security benefits of the general public, the Chinese government has made every effort to establish a sound social security system that corresponds with the socialist market economy system. After years of exploration and practice, a social security system has been basically set up, consisting mainly of social insurance, social relief, social welfare, social mutual help and special care for disabled ex-servicemen and family members of revolutionary martyrs, and featuring the raising of funds through various channels and the gradual socialization of management and services.

Reforming the Social Security System

Since the early 1980s, the Chinese government has carried out a sequence of reforms in its social security system with the goal of establishing a standardized social security system independent of enterprises and institutions, funded from various channels, and with socialized management and services - a system characterized mainly by basic security, wide coverage, multiple levels and steady unification. Under this mandatory state basic security, people's basic living needs will be met corresponding with China's economic development level, and the social security network will cover all citizens step by step. Besides basic security, the state will actively promote other types of social security so as to form a multi-level social security system. Through reform and development, a nationally unified social security system will be put into practice step by step. Through more than a decade's efforts, basic social insurance policies have been formulated, and successively promulgated and implemented, covering the vast majority of urban staff and retirees, and in some regions even rural people working in cities are included. A social security system that guarantees urbanites a minimum standard of living has been established across China. In 2001, the Chinese government began a pilot program in Liaoning Province, aimed at improving the existing social security system in cities.

Since the mid-1990s, the Chinese government has undertaken reforms to the social security management system in order to bring all social security systems under unified planning, and better manage and supervise the use of social security funds. Social insurance, which was previously governed by a number of administrative departments, is now under the centralized management of the labor and social security administration departments. Labor and social security administration departments at all levels have established offices to handle the daily routine of social insurance. The handling of social insurance affairs that used to be the responsibility of enterprises are gradually being transferred to social organizations, namely beneficiaries now get their social insurance benefits from organizations in their own communities and are subjected to the latter's administration. The Chinese government has strengthened administrative and social supervision over social insurance funds. These funds have been orbited into special accounts and a system has been set up, whereby revenue and expenditure are managed separately and the funds are used for specified purposes only. Labor and social security administration departments at all levels have established supervisory organs to examine and supervise the collection, management and payment of social insurance funds. They also investigate and punish those who violate the pertinent laws and regulations. In addition, the Chinese government has adopted a large body of measures to increase the sources of social security funds, such as strengthening the collection of social security funds and raising the ratio of such funds in the overall financial expenditure. In 2001, the central finance allocated 98.2 billion yuan to be used for social security payments, 5.18 times the figure for 1998. The Chinese government has established a National Social Security Fund Executive Council specially responsible for the operation and administration of the funds acquired from reducing state shareholding, the funds put in by the central finance and social security funds collected from other channels. The National Social Security Fund comes from the central finance appropriations as well as from other channels.

Since 1998, the Chinese government has adopted a "two guarantees" policy. The first is a guarantee of the basic livelihood of the laid-off personnel from state-owned enterprises. Reemployment service centers for those laid-offs have been established in all state-owned enterprises. They give laid-off personnel allowances for basic living expenses and pay social insurance premiums for them, with the required funds coming from the government budget, enterprises and other sources (mainly unemployment insurance funds). They also provide job guidance and organize reemployment training programs to help laid-off personnel find new jobs. The second guarantee is to ensure basic livelihood for all retirees and that they receive basic pensions in full and on time. To ensure the implementation of the "two guarantees," the Chinese government has put forth three corresponding policies: Laid-offs from state-owned enterprises can receive a basic living allowance from the reemployment service centers for a maximum of three years; if they still haven't found a job by then, they can receive unemployment insurance payments for a maximum of two years; at the end of the two-year period, if they still haven't been reemployed, they can apply for the minimum living allowance paid to urban residents. By 2001, the vast majority of people laid off by state-owned enterprises were receiving a basic living allowance, and retired personnel were receiving their pensions in full and on time. Thus the "two guarantees" policy has played a major role in safeguarding the legitimate rights and interests of laid-off and retired personnel, and in maintaining social stability.

The Old-Age Insurance System

Reform of the old-age insurance system was initiated throughout China in 1984. In 1997, the Chinese government adopted a Decision on Establishing a Uniform Basic Old-Age Insurance System for Enterprise Employees, in light of which efforts were started along this line in urban areas nationwide.

The basic Chinese old-age insurance system combines mutual assistance programs with personal accounts. Employees of all urban enterprises may participate in the basic old-age insurance program, and all enterprises and employees in towns and cities have the obligation to pay the basic old-age insurance premiums. At present, about 20 percent of the enterprise wage bill and 8 percent of personal wage should go to such insurance. Part of the basic insurance premiums from enterprises is used to set up mutual assistance funds, and the rest goes to personal accounts. The basic old-age insurance premiums paid by the individuals go entirely to their personal accounts. The basic old-age pension is in two parts: the base pension and the pension in personal accounts. The base pension is covered by the mutual assistance funds, the monthly sum amounting to 20 percent of the average social wage of the employees and the monthly pension in personal accounts come to 1/120 of the accumulated amount in personal accounts. Pensions in personal accounts can be inherited. Those who started working before, and retired after, the implementation of this new system are entitled to an additional pension for the transitional period.

Employees participating in the old-age insurance program increased from 86.71 million in late 1997 to 108.02 million by the end of 2001, after several years of implementation of the program. The number of those enjoying basic old-age pension also increased from 25.33 million to 33.81 million, with the average monthly basic pension per person growing from 430 yuan to 556 yuan. To ensure the timely and full payment of the pension, the Chinese government in recent years has tried to raise the basic old-age insurance fund under the mutual assistance program gradually to the provincial level, coupled with a steady increase of the financial input in that direction. From 1998 to 2001, the subsidy outlay for this from the central finance alone attained the grand total of 86.1 billion yuan. Now basic old-age pensions are mostly delivered through social service institutions, such as banks and post offices. In 2001, 98 percent of these pensions were delivered in this way. The existing old-age security system for employees and retirees from government institutions remain unchanged.

In 1991, China began to try out the old-age insurance system in some of the rural areas. The basic principle for the rural old-age insurance system is that the premiums are to be paid mainly by the beneficiaries themselves, supplemented by collectively pooled subsidy and supported by government policies, the accumulation of funds taking the form of personal accounts.

The Medical Insurance System

In 1988, the Chinese government began to reform the free medicare system in government institutions and the labor protection medicare system in state-owned enterprises. In 1998, the government issued the Decision on Establishing the Basic Medical Insurance System for Urban Employees, enforcing a basic medical insurance system for urban employees throughout the country.

China's basic medical insurance system also combines social mutual assistance programs with personal accounts. In principle, the basic medical insurance funds come in the form of mutual assistance programs at prefectural and city levels. The basic medical insurance covers all urban employers and employees, and all enterprises, state administrative departments, institutions and other organizations and their staff members and workers have the obligation to pay the basic medical insurance premiums. At present, about 6 percent of the wage bill of employing units and 2 percent of personal wages should be paid as part of the medical insurance premiums. Part of the insurance premiums from employing units goes to the funds under the mutual assistance program, and the rest to the employees' personal accounts. The personal insurance premiums go entirely to personal accounts. The mutual assistance funds and personal accounts are used to pay for different types of medical costs: The former mainly for hospitalization and outpatient services in the case of certain chronic diseases, with a set starting standard and a maximum norm, and the latter mainly for general outpatient services.

To ensure that employees covered by the insurance program enjoy basic medical service and the service charges do not increase too rapidly, the Chinese government has strengthened its administration of medical services by specifying a list of medicines, medicare service items and standards of medicare facilities to be covered by basic medical insurance and evaluating the qualifications of the medical institutions and pharmacies that provide basic medical insurance service, and allowing those who participate in the program the right to make their own choices. To support the reform of the basic medical insurance system, the government has also initiated a reform of the medical institutions and the medicine production and circulation system. A mechanism of competition between medical institutions and a market operating mechanism for medicine production and circulation have also been set up for "better medical service at lower cost."

Apart from the basic medical insurance, a system of mutual help in the case of large-amount medical costs has been set up throughout the country to cover medical costs in excess of the maximum coverage under the mutual assistance program. The state has also set up a medical subsidy program for civil servants. Enterprises are encouraged to set up enterprise supplementary medical insurance for their employees, where conditions permit. The state will also, step by step, institute a social medicare assistance system to provide basic medical security for the impoverished population.

The reform of the basic medical insurance system is being carried out steadily in China, with a continued increase in the coverage of basic medical insurance. By the end of 2001, 97 percent of prefectures and cities had started such reform programs, and 76.29 million employees had participated in basic medical insurance programs. In addition, free medical service and other forms of medicare security systems cover over 100 million urbanites. The Chinese government is now working to incorporate these people gradually in the basic medical insurance system.

The Unemployment Insurance System

Shortly after the founding of the People's Republic of China in 1949, an unemployment relief system was introduced for a short period of time. Later, with the institution of the employment system featuring unified job assignment under the planned economy system, the relief system had gradually gone out of the picture. Following the adoption of the reform and opening-up policy the Chinese government began to set up an unemployment insurance system in 1986 to adapt to the changes in the operating mechanism of state-owned enterprises and the major reform of the labor system, so as to guarantee basic livelihood for laid-off employees.

In 1999, the Chinese government issued the Regulations on Unemployment Insurance, pushing the unemployment insurance system building onto a new stage of development. This system covers all urban enterprises and institutions and their staff, whereby all enterprises and institutions and their staff must pay the insurance premiums, the former paying 2 percent of their wage bill and the latter 1 percent of their personal wages. Three conditions are to be met to enjoy the benefits of the unemployment insurance: One full year of the insurance premium has been paid; suspension of employment is not voluntary; and unemployment has been registered and application for reemployment filed. Unemployment insurance benefits consist mainly of unemployment insurance money, which the beneficiary can draw every month, with the standard lower than the minimum wage but higher than the minimum living allowance for urban residents. The period for drawing insurance money depends on the length of period for which one has paid the premiums, the maximum being 24 months. If the employed person is ill during the period he or she is entitled to draw unemployment insurance money, he or she is also entitled to medical subsidies. If the unemployed person dies during this period, his or her family can receive funeral subsidies and his or her dependants can receive pension for the deceased. In addition, the unemployed person may receive vocational training and subsidies for job agency services when drawing the unemployment insurance money.

In recent years, the coverage of unemployment insurance has grown continuously, with the number of the insurance policy underwriters increasing from 79.28 million in 1998 to 103.55 million in 2001. The number of people who did not draw unemployment insurance money was 3.12 million in 2001. With the improvement of the unemployment insurance system, the basic livelihood guarantee system for laid-offs from state-owned enterprises is being gradually orbited into this system.

The Industrial Injury Insurance System

In the late 1980s, the Chinese government began its reform of insurance covering injuries suffered on the job. In 1996, the government issued the Trial Procedures for Industrial Injury Insurance for Enterprise Employees, to be followed by the establishment of relevant systems in some of the regions. In the same year, the Standards for Appraising Industrial Injuries and Disabilities Caused by Occupational Diseases was adopted by the government department concerned, providing the basis for such appraisal.

The Trial Procedures for Industrial Injury Insurance for Enterprise Employees states that industrial injury insurance premiums shall be paid by enterprises instead of by employees themselves. The rate of industrial injury insurance premium varies according to different trades, and it may fluctuate with the situation of the individual enterprise. The rate of premiums is determined on the basis of the level of industrial injury risks and that of occupational danger in different trades. Based on the trade insurance rates, the specific premium rate of the year for an enterprise is decided according to its actual number of industrial injuries and risks and the outlays of the insurance funds in the previous year.

Payment of industrial injury insurance funds covers mainly medical costs sustained during the treatment of the injury, and the injury or disability subsidies, pension for the disabled person or family of a deceased person, and injury or disability nursing charge, all of which are to be determined according to the degree of disability upon termination of the medical treatment. By the end of 2001, the national average rate of industrial injury insurance premium was about 1 percent, with over 43.45 million employees covered by the industrial injury insurance scheme. Enterprises not having acceded to such scheme are responsible for covering the industrial injury expenses themselves.

The Childbirth Insurance System

Reform of the childbirth insurance system started in some enterprises in China in 1988. Based on a summing-up of the experience gained, the Chinese government mapped out the Trial Procedures for Childbirth Insurance for Enterprise Employees in 1994, which stipulates that the childbirth insurance premiums shall be paid by enterprises instead of by employees themselves. The insurance benefits cover mainly medical treatment for childbirth and monthly childbirth allowance for employees during maternity leave. By the end of 2001, the national average childbirth insurance expense rate was 0.7 percent, with 34.55 million employees covered by the insurance scheme. Enterprises not having acceded to such scheme are responsible for paying the childbirth expenses for their employees.

The Minimum Living Standard Security System

In the early years after the founding of the People's Republic of China, the government set up a social relief system for the urban and rural poor. In 1993, it began to reform the social relief system in cities, at the same time seeking to try out a minimum living standard security system. In 1999, this security system was established in all cities and organic county towns throughout the country. In the same year, the Chinese government officially promulgated the Regulations on Guaranteeing Urban Residents' Minimum Standard of Living to ensure the basic livelihood of all urban residents.

Funds for this purpose are included in the fiscal budgets of the local people's governments, which determine the minimum living standard according to the cost necessary for maintaining the basic livelihood of the local urbanites. Urban residents whose average family income is lower than the minimum living standard can apply for the minimum living allowance. Investigation of the family's income shall be conducted before issuance of the minimum living allowance, the level of which is calculated in terms of the difference between the family per-capita income and the minimum living standard.

In 2001, there were 11.707 million urban residents nationwide drawing the minimum living allowance, with 2.301 billion yuan for the minimum living allowance coming from the central finance. In recent years, part of the rural areas has started to set up a similar minimum living standard security system.

The Social Welfare System

The social welfare system is a system established by the Chinese government to provide funds to ensure the livelihood of senior citizens, orphans and the handicapped persons who are in extraordinarily straitened circumstances. To protect the rights and interests of this special group of people, the government issued the Law of the People's Republic of China Guaranteeing the Rights and Interests of Senior Citizens, Law of the People's Republic of China on Protection of the Handicapped and Regulations Concerning Work on Providing "Five Guarantees" in the Rural Areas. The laws stipulate that in cities elderly widows and widowers who are childless and helpless and living alone, and eligible handicapped persons and orphans shall be supported and reside in special concentrated homes, while a combination of concentrated and scattered forms shall apply to those in the rural areas. Concentrated establishments include social welfare homes, old-age homes, sanatoriums, and children's welfare homes. For handicapped persons, government aid efforts include the formulation of preferential policies for establishing social welfare enterprises of diverse types to help create job opportunities for those who are able to work.

China has achieved marked progress in its social welfare work. By the end of 2001, there were 3,327 government-run social welfare institutions with 191,000 inmates, 35,000 collective-run social welfare institutions with 668,000 inmates, 934 private-run social welfare institutions with 34,000 inmates, and 38,000 social welfare enterprises employing 699,000 handicapped people. Meanwhile, special lotteries have been instituted to collect funds for social welfare undertakings. In 2001 alone, the funds raised for these undertakings reached 4.2 billion yuan.

The Special Care and Placement System

This refers to the system aimed at compensating or commending the special group of people who have rendered meritorious services to the state and society. At present, more than 38 million people are included in this category. To ensure their rights and interests, the government has issued the Regulations on Honoring Revolutionary Martyrs, Regulations on Special Care and Treatment for Servicemen and Regulations on the Resettlement of Ex-Servicemen in Cities and Towns. These regulations stipulate that a regular and fixed-amount subsidy shall be given to the key recipients, such as dependents of fallen servicemen, disabled revolutionary servicemen and demobbed veterans, that dependents of conscripts be granted special allowances; that medical costs be reduced or waived for disabled revolutionary servicemen and other key special-care recipients; that demobbed soldiers shall enjoy a just-for-once job assignment from the government and those who wish to find jobs on their own be given subsidy in one lump sum. Special-care allowances to the tune of 29.2 billion yuan were allocated from state budgets at all levels from 1996 to 2001.

The Natural Disaster Relief System

China frequently suffers the ravages of natural disasters, such as floods, droughts, windstorms and hailstorms, which have adversely affected people's lives. The Chinese government has set up a special social relief system to relieve the sufferings of victims of unexpected natural calamities. Every year, relief funds are allocated from government budgets at central and local levels for this purpose. From 1996 to 2001, such expenditures reached 21.26 billion yuan-worth nationwide, providing food, clothing and quilts for 390 million disaster victims. This disaster relief system has gone a long way toward guaranteeing the basic livelihood of the people in the disaster-stricken areas.

The Social Mutual Help System

Mutual help among neighbors is one of the Chinese nation's fine traditions. Issued in 2000, the Law of the People's Republic of China on Public Welfare Donations institutionalizes and encourages regular donations for social welfare. In 2001, civil affairs departments received 1.59 billion yuan of donations from the general public (including goods converted into money). The Chinese government also encourages enterprises, institutions and mass organizations to organize efforts to help the poor shake off poverty and get rich. Governments at the grassroots levels also operate community services for the poor and needy. Since 1994, trade unions at all levels have organized "heart-warming activities" every year to offer help to badly-off families. Over the past few years, a total of 10.44 billion yuan for this purpose have been raised and sympathy visits paid to families of 39.75 million poverty-stricken employees, model workers, retirees, and injured, sick or disabled employees.