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China Welfare Reforms Encounter Obstacles - 2001-11-27

China is attempting to set up a national social security system to make sure that retirees and laid-off workers don't fall into poverty. But the welfare reforms are fraught with problems. Three times a week, unemployed workers in Jilin's capital, Changchun, come to this downtown job market hunting work. Most are casualties of failing state-owned enterprises, which are shedding excess workers in an effort to become more efficient.

Mr. Li, a 36-year-old former salesman, complains it is a waste of time for him to come here. He has spent the past several years searching unsuccessfully for work, he says. He keeps trying because he gets no welfare support, and he needs to look after his wife and 16-year-old son.

In China's depressed northeast, even university graduates are having trouble finding work. Mr. Du, a 25-year-old man who studied public relations in university, has been jobless since his former employer went out of business early this year. He says he still has hope of finding work because of his youth.

As China dismantles its planned economy, social security reform is at the top of the government's agenda. The goal is to provide aid to jobless workers and secure pensions for retirees. But there are signs that the reforms have run into trouble.

Under the current system, local governments solicit money from state-owned and private companies for a pooled pension fund. Workers contribute only a small amount to the fund. But Professor Zhao Yaohui, of Beijing University's Center for Economic Research, says many companies refuse to pay their share. Ms. Zhao says that because government officials manage pension funds, there is no independent supervision. She alleges the collection process is not transparent, so much of the money is embezzled. Ms. Zhao also says Beijing's response has been merely to build on the existing pay-as-you-go system.

Ms. Zhao recommends that the government create fully funded individual accounts, so pension money is taken out of government hands. That way, she says, workers will have an incentive to make sure their money is professionally managed, with higher returns.

In a pilot project in Liaoning province, the government is experimenting with such individual accounts. But there are reports the provincial government has already run out of money and has had to fall back on the central government for help.

As Beijing ponders ways of funding social security, its welfare needs are rising sharply. Bruce Murray, the Asian Development Bank's representative in Beijing, says that fewer and fewer workers now must pay for the pensions of more and more retirees. "There is a significant implicit pension debt, which is unfunded, that we would estimate between 50 to 100 percent of GDP [gross domestic product]," says Mr. Murray. "That's somewhere between $500 billion and $1.5 trillion. It's a major funding challenge."

Complicating reforms further, Beijing last month suspended a plan to sell some of its shares in listed state-owned enterprises, because of the weak stock markets. The government was going to use the sale to finance a national pension fund.

Mr. Murray of the Asian Development Bank - which has advised Beijing on its pension reforms - says it will be several years before the reforms are completed. "It's a fundamental change from the way social security was provided during a centrally planned economy. There are literally hundreds of billions of dollars at stak," he says. "You cannot move too quickly there because the risks of making a mistake are very, very large."

Liaoning province where the pilot reform project started several months ago seems acutely aware of the risks involved. Provincial officials turned down repeated requests from VOA for interviews on pension reforms there. According to one official who declined to be named, the project hasn't gotten off the ground and is still being studied.