Bridging China’s urban-rural benefits divide

May 21, 2014 by Yang Shen

China’s strong economic growth in the last three decades has led to rising prosperity but also rising inequality, both socially and geographically. This, in turn, has led to high levels of internal migration as people move from the relatively low-income rural regions to the booming cities and industrial regions. Will reforms aimed at bridging the urban-rural pension divide make a difference? 

According to the official statistics, in 2013 China has 269m migrant workers, of which 166m moved away from their home counties in order to make a living. The imbalance in development between the western and eastern parts of the country, as well as between the rural and urban areas, is one of the primary reasons rural residents move to the cities where they quickly become the disadvantaged residents due to the hukou household registration system, low wages, unpleasant living conditions, overtime work and scarce social welfare.

The gap in pension between the urban and rural areas reflects the social inequality. In 2012, under the urban retirement pension scheme, an average resident can get 20.6 thousand yuan per year – 24 times the amount available under the new rural social pension scheme. An average resident under the latter scheme receives only 71 yuan monthly pension, around a third of the minimum cost of living in rural areas.

China’s government has become increasingly concerned about the social instability caused by mass migration and seeks to create a more ‘harmonious society’ while maintaining economic prosperity. The social welfare system has been undergoing transformation. According to the 2010 Social Insurance Law , since July 2011 the social benefits once attached to one’s hukou (household registration), can be transferred from one place to another.

In February 2014, the central government released a plan to create a unified pension system for the urban and rural population before 2020, in an attempt to deal with the massive disparity between urban and rural areas. In the case of Shanghai, for example, migrants’ social benefits are now integrated into the city’s insurance system. Non-Shanghai urban hukou holders can enjoy pensions, medical and injury benefits, as well as maternal and unemployment benefits. After retirement, they can enjoy the urban retirement pension by paying a certain proportion of fees for 15 years in Shanghai.

However, non-Shanghai rural hukou holders are only entitled to the first three benefits enjoyed by urban hukou holders. The social benefits, which were divided into Shanghai and non-Shanghai hukou, have now shifted into urban and non-urban hukou. So even though the hukou system is less rigid than it was in the past, it is still a source of discrimination.

According to the municipal government, non-Shanghai rural hukou holders will be entitled to all five benefits within three years. The central government set up this buffer for Shanghai mainly to ease the pressures on employers, who will have to pay for it. Other reasons are connected to the lack of a nationwide synchronised social welfare system. For example, it is compulsory to pay the fees for all the social benefits together as a compulsory package in Shanghai, whereas in some provinces residents can choose which benefits to pay for.

An official at Shanghai’s Municipal Human Resources and Social Security Bureau interviewed for this article say that the main reason for reforming the social benefits of migrants is to “reduce social differentiation”. Other officials reiterate that the policy aims to ensure the well-being of migrant workers, decrease the gap between urban and rural residents and to achieve social equality.

When asked if top-down policies are well understood, they say that the government has made great efforts to provide information and publicise free services to migrant workers. They argue that migrants should take the initiative to understand policies that closely relate to them and make use of the services provided.

At the employers’ level, a manager of a top-100 restaurant chain in China said that in the light of the social welfare reform the restaurant has been planning to cut staff because of the extra payment of pensions for the employees. Ironically, due to labour shortages, this is easily achieved. He has found it impossible to recruit enough people from 2008 onwards; and second, he has made more use of part-time workers, to whom the restaurant does not need to pay social benefits.

Around 95% of restaurant workers in this restaurant chain are from rural China. Many of them have already registered under the new rural social pension scheme in their home villages. The compulsory social benefits tied up with work in Shanghai seem repetitive and unnecessary to them.

Workers interviewed for this article exhibited two typical perspectives. Some are unwilling to pay for the social benefits, although they are forced to do so. They care more about whether they can take money out of the system once they leave Shanghai than whether they can obtain three or five kinds of social benefits. Others say that social benefits are good for their future but they are confused about how to transfer the benefits to their home region or how to withdraw the money once they quit their job and move away.

Many informants have no idea about the transferability of the social benefits. Being poorly educated and working 60 hours a week, they simply do not have the ability and time to access to the information provided by the government.

However, according to Xinhua News Agency, migrant workers are considered the greatest beneficiary of the current pension scheme reform. Those who work in the cities can switch their pensions between urban retirement pension and urban-rural resident pension based on their needs.

The new rural social pension will be integrated to urban-rural resident pension. A migrant worker who pays for both urban retirement pension and urban-rural resident pension is encouraged to stay with the former scheme, and the money paid for the latter will return to the pension payer. Nevertheless, how to make the unsynchronised welfare system between different regions compatible is an issue that has not yet been addressed by the Shanghai Municipal government.

According to officials, Shanghai had intended to create a more inclusive environment for migrant workers. However, not all the migrant workers interviewed for this article appreciate the government’s efforts. How to allow migrant workers to benefit the most from this new policy – and how to make policies that meet their real needs – are issues that need to be addressed by the government.

It is clear that different stakeholders – the government, employers and employees – have different concerns based on their own particular standpoint. In order to ensure that migrants fully benefit from the new policies, government will need direct contact with grassroots migrant groups and will also need to develop a more transferrable national social welfare system.

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