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Covering a Nation: The Future of China's Universal Welfare System


HUMAN societies have long strived to look after their members beyond personal ties and loyalties. In ancient China, this pursuit was referred to as Datong, or the “Grand Union.” Confucius himself spoke on the subject and its existence in previous times, saying, “Men did not love their parents only, nor treat as children only their own sons. Competent provision was secured for the elderly till their death, employment for the able-bodied, and the means of growing up to the young. They showed kindness and compassion to widows, orphans, childless elders, and those who were disabled by disease, so that they were all sufficiently maintained.”

China's Social Welfare System

The welfare state is based around a social contract between the state, employers and employees concerning the redistribution of income so that the basic needs of the members of a society are met, universally and fairly, when faced with situations such as aging, sickness, and unemployment.

There are primarily two models of social welfare systems that emerged in the years following the Second World War – the Anglo-Saxon model and the Continental model. They are still around today. In the former, which was pioneered by the U.K., state assistance is generally a last resort. The state will only step in once the market and the family have failed to sufficiently provide a means of living. The latter, represented by Germany, is based more on risk prevention.

Every country has its own attitude towards the responsibilities of the state in terms of social welfare, which are deeply rooted in native cultures. The social welfare systems of the U.S., Japan and Australia can all be classed under the Anglo-Saxon model, whereas in the Nordic countries, the coverage of social welfare is even greater than in countries that employ the Continental model. More recently, during the 1980s a new model known as developmental welfare emerged, whose guiding principles are people participation and development.

When it was first established after the Second World War, China’s social welfare system fell more or less under the Anglo-Saxon model, largely due to the massive influence of the United States during that time. Then, the welfare system consisted mainly of social relief and remedial welfare services that only covered disadvantaged groups. In contrast to the extensive coverage of social welfare in welfare states, its scope in China was much smaller.

This basic framework continued in the People’s Republic of China until 2006, when the central government announced a grand scheme of building a socialist society in which the social welfare system would cover every single citizen, whether urban or rural. Since then, China has been pulling towards this goal. In recent years the vision for China’s welfare state has morphed into one in which the state will provide universal but modest welfare.

With the European debt crisis continuing to cast a shadow over the region, many questions and doubts have been raised recently about the desirability of universal social welfare. The main argument against the welfare state is that it nurtures sluggards, and that excessive payouts and support erodes state finances and holds back the national economy. This point of view has taken a strong hold among many Chinese academics, politicians, businessmen and the media.

In reality, the welfare state is not the reason behind the European debt crisis. On the contrary, established welfare institutions in the Western world directly contributed to the 20-year-long golden run of economic development in these countries. A more convincing culprit was the oil crisis of the 1970s. In Europe, high unemployment resulted from sluggish manufacturing industries. This meant a reduced payment of social insurance premiums and an increase in recipients of social relief. Government tax revenues were harmed further by the exodus of domestic capital. Some countries were thus compelled to incur debt in order to rescue their domestic economies. However, the accumulation of debts inevitably led to the break in capital chains, which triggered the current crisis.

A Universal Future

China’s social and economic development is reaching a turning point. The country has gone through a process of primitive capital accumulation and raised the overwhelming majority of its people out of poverty. Today, having achieved greater economic strength, it is time for China to adjust its aims of and approach to development. Consumption is set to become the major driving force of its economic growth. As such, China’s goal of creating a fair and universal welfare system hinges on people’s willingness to spend.

In the light of this change the importance of social welfare must be stressed. Not only will it guarantee the standards of living of Chinese citizens, but with fewer concerns about the future they will also be freer with their money. At present, worries about medical expenses, old age, and unemployment that hang over average Chinese people explain the country’s exceptionally high savings rate, which is holding back the shift towards a consumer economy. Social welfare is thus not merely an institution that is funded by the public purse, but a vital factor in social and economic development.

Over the past five years the government has made great leaps towards full coverage. At the end of 2011, 473 million people in cities and towns and 832 million in rural areas, who together make up 96 percent of the total population, were covered by basic medical insurance. Finally, social aid has covered the entire country since 2007. In 2007 RMB 27.7 billion and RMB 10.4 billion were allocated to provide subsistence allowances to 23 million urban residents and 32.66 million rural dwellers respectively. By 2011 these appropriations had increased to RMB 61.7 billion and RMB 60.6 billion. The number of beneficiaries in urban areas remained constant, while that in the countryside more than doubled to 53.14 million.

Though China can be pleased with its progress in this area, social welfare for all is only one step on the long journey to a more equal and prosperous country. Many improvements are still needed before a comfortable and fulfilling life is within the reach of every citizen.

VOL.59 NO.12 December 2010 Advertise on Site Contact Us