Inter-Regional Competition in Retirement Benefit Growth—The Role of the Sub-National Government in Authoritarian China

Abstract

After the Chinese central government announced a policy of raising retirement benefits in 2005, there ensued a race to the top in pension benefit growth among its 31 provincial units. This study seeks to explain how this seemingly unusual nationwide social welfare expansion came about in authoritarian China. It helps to open up the black box of mysterious Chinese politics. The study highlights the roles of sub-national governments in decentralized Chinese social welfare policymaking. Instead of treating authoritarian rulers as unitary actors, this study looks into the interplay of center and provinces in a decentralized authoritarian political system. Compared with the center, provinces have traditionally been more reluctant to devote economic resources to social welfare. To motivate provincial governments to implement a policy of increased benefits, the center granted fiscal subsidies to certain provinces. This special subsidy program had three effects: (1) it reduced the provincial costs of the benefit increase; (2) it elevated the center’s annual fiscal transfer base for subsidized provincial governments beyond the current year, into the future; and (3) it increased disposable personal income, a key indicator of local government officials’ political merits in the cadre evaluation system. Inter-provincial competition in raising retirement benefits is explained, first, by provinces’ desires to earn greater fiscal subsidies from the center; and, second, by the efforts of those provinces which did not receive the subsidies to keep their benefit levels up with the levels of those which did. The result of the center’s subsidy program was not only a rise in pension levels, but also an increase in inter-regional social welfare disparities. The central government, perhaps alarmed by the consequences of its policy, acted to bring the rapid expansion of pension levels to an apparent end in 2016.

Notes

¹ Yuming Han, and Shaofeng Guo, ‘Zhuanjia: Buneng yikao yan chi tuixiu nianlin buneng jiejue yanglaojin yali’ [‘Experts: The pressure of pension fund could not be solved by postponing retirement ages’] Xinjing bao, July 16, 2012. Available at: http://finance.sina.com.cn/china/20120716/020912572435.shtml (accessed 29 August 2016).

² Shahid J. Burki, Guillermo Perry, and William R. Dillinger, eds. Beyond the center: Decentralizing the State (Washington, DC: World Bank Publications, 1999); Andrew Wedeman, ‘Agency and fiscal dependence in central-provincial relations in China. Journal of Contemporary China 8(20), (1999), pp. 103–122.

³ Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism (Princeton, NJ: Princeton University Press, 1990).

⁴ See Ellen M. Immergut, ‘The rules of the game: the logic of health policymaking in France, Switzerland, and Sweden’, in Structuring politics: Historical Institutionalism in Comparative Analysis, edited by Sven Steinmo, Kathleen Thelen and Frank Longstreth (Cambridge: Cambridge University Press, 1992); Torben Iversen and David Soskice, ‘Electoral institutions and the politics of coalitions: Why some democracies redistribute more than others’, American Political Science Review 100(2), (2006), pp. 165–181.

⁵ Peter Swenson, ‘Bringing capital back in, or social democracy reconsidered: Employer power, cross-class alliances, and centralization of industrial relations in Denmark and Sweden’, World Politics: A Quarterly Journal of International Relations 98(3), (1991), pp. 513–544.

⁶ Adam Przeworski et al., Democracy and Development: Political Institutions and Well-being in the World, 1950–1990 (Cambridge: Cambridge University Press, 2000).

⁷ Mary Gallagher and Jonathan K. Hanson, ‘Coalitions, carrots, and sticks: economic inequality and authoritarian states’, PS: Political Science & Politics, 42(4), (2009), pp. 667–672; Beatriz Magaloni, Voting for Autocracy: Hegemonic Party Survival and its Demise in Mexico (New York: Cambridge University Press, 2006).

⁸ Dmitriy Gershenson and Herschel I. Grossman, ‘Cooption and repression in the Soviet Union’, Economics & Politics 13(1), (2001), pp. 31–47.

⁹ Martin C. McGuire and Mancur Olson, Jr., ‘The economics of autocracy and majority rule: the invisible hand and the use of force’, Journal of Economic Literature 34(1), (1996), pp. 72–96.

¹⁰ Daron Acemoglu and James A. Robinson, Economic Origins of Dictatorship and Democracy (Cambridge: Cambridge University Press, 2006); Carl Boix, Democracy and Redistribution (Cambridge: Cambridge University Press, 2003).

¹¹ Mark W. Frazier, Socialist Insecurity (Ithaca, NY: Cornell University Press, 2010); Paul Pierson, ‘Fragmented welfare states: federal institutions and the development of social policy’, Governance 8, (2005), pp. 449–478.

¹² See Terry Moe, ‘The new economics of organization’, American Journal of Political Science 28(4), (1984), pp. 739–777.

¹³ Ramgopal Agarwala, Old Age Security: Pension Reform in China (Oxford: Oxford University Press, 1997).

¹⁴ Robert Holzmann, Aging Population, Pension Funds, and Financial Markets: Regional Perspectives and Global Challenges for Central, Eastern, and Southern Europe (Washington, DC: World Bank Publications, 2009).

¹⁵ Barry R. Weingast, Kenneth A. Shepsle, and Christopher Johnsen, ‘The political economy of benefits and costs: a neoclassical approach to distributive politics’, The Journal of Political Economy 89, (1981), pp. 642–664.

¹⁶ Administrative decentralization here means that the national government delegates authority to sub-national governments to make certain policy decisions, subject to review and possible veto from above; fiscal decentralization implies that the national government permits sub-national governments to retain an increased share of nationwide fiscal revenues.

¹⁷ Hongbin Cai and Daniel Treisman, ‘Did government decentralization cause China's economic miracle?’, World Politics 58(4), 2006, pp. 505–535.

¹⁸ ‘Wen Jiabao zuihou yifen zhengfu gongzuo baogao, minsheng huati guanchuan shizhong’ [Premier Wen Jiabao’s last government work report; Social welfare mentioned throughout the whole report], Zhongguo xinwen wang, March 5, 2013. Available at: http://www.chinanews.com/gn/2013/03-05/4616339.shtml (accessed 29 August 2016).

¹⁹ Justin Yifu Lin, et al., ‘Decentralization and local governance in the context of China’s transition’, Perspectives in Health: The Magazine of the Pan-American Health Organization 6(2), (2005), p. 25; Jean C. Oi, ‘The role of the local state in China's transitional economy’, The China Quarterly 144, (1995), pp. 1132–1149.

²⁰ Roger Goodman and Ito Peng, ‘The East Asian welfare states: peripatetic learning, adaptive change, and nation-building’, in Gøsta Esping-Andersen, ed., Welfare States in Transition: National Adaptations in Global Economies (London: SAGE Publications Ltd., 1996), pp. 192–224; Ian Holliday, ‘Productivist welfare capitalism: social policy in East Asia’, Political Studies 48(4), (2000), pp. 706–723.

²¹ Andrew Wedeman, ‘Agency and fiscal dependence in central-provincial relations in China’.

²² Victor C. Shih, Luke Qi Zhang, and Mingxing Liu, ‘When the autocrat gives: determinants of fiscal transfers in China’, Department of Political Science, Northwestern University, Evanston, IL, 2011. Available at: http://faculty.wcas.northwestern.edu/~vsh853/papers/shih_zhang_liu_autocratgives08.pdf (accessed 29 August 2016).

²³ Mark Frazier, Socialist Insecurity; Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley and Los Angeles, CA: University of California Press, 1993).

²⁴ This tendency was learned in the first author's interviews with Chinese officials. It was mentioned by more than one officer, representing more than one locality, and was confirmed by an official in the Ministry of Finance.

²⁵ Loraine A. West, ‘Pension reform in China: preparing for the future’, IPC staff paper No. 83, US Bureau of the Census, (1996), p. 26. Available at: https://www.census.gov/population/international/files/sp/SP83.pdf (accessed 29 August 2016).

²⁶ In practice, individual accounts are emptied (kong zhang) by local governments to pay for retirement benefits of current retirees. The World Bank categorizes the Chinese pension system as a notional individual account system, instead of the three-pillar scheme the Bank had advocated (see Mark C. Dorfman, Robert Holzmann, Philip O'Keefe, Dewen Wang, Yvonne Sin, Richard Hinz, China's Pension System: A Vision (Washington, DC: World Bank Publications), 2013. However, many scholars still call the Chinese model a three-pillar model, as it arguably does have three pillars—public pensions, individual accounts, and supplementary insurance programs; and the government requires compulsory contributions to the first two.

²⁷ Wenjiong He, Lei Hong, and Xinyan Chen, ‘Zhigong jiben yanglao baoxian daiyu tiaozheng xiaoying fenxi’ [An analysis of the effects of urban employees’ pension benefit adjustment], Zhongguo Renkou Kexue 3, (2012), pp. 19–30.

²⁸ Yufan Luo, and Yuhang Zhao, ‘Yanglao jin gaige: shi lian zhang zhihou haixu po ti shuang gui zhi’ [‘Pension reforms: Need to tackle the dual-track pension system problem after pension benefit increases for consecutively ten years’], Xinhua wang, January 14, 2014, Available at: http://finance.people.com.cn/n/2014/0114/c70846-24114350.html (accessed 29 August 2016).

²⁹ Zhenghua Sun, ‘Shebao tongzhang jiehe zouin si hutong’ [‘Hybrid social security system went into a dead end’], Fazhi ribao, May 13, 2010. Available at: http://www.legaldaily.com.cn/zmbm/content/2010-05/13/content_2137420.htm?node=7573 (accessed 29 August 2016.

³⁰ Hong Chang and Lili Huang, ‘Lianghui redian diaocha: 73% wang you renwei tuixiu ‘shuang gui zhi’ bu heli’ [‘Surveying hot topics for the Two Conferences: 73% of netizens believed that the dual-track pension system made no sense’], Renmin ribao dianzi ban, February 1, 2010. Available at: http://npc.people.com.cn/GB/10896572.html (accessed 29 August 2016.

³¹ In December 2014 the center announced their intention to merge the two pension programs. However, how this merger actually affects the pension program was not clear at the time the present study was completed.

³² In one interview, the respondent, a center official, said that, as an example, if the center required a 20% contribution rate, the resulting national average would be a 12% contribution rate.

³³ Xinjiang Production and Construction Army Corps (XPCC) is excluded from this study. Created in 1954 by the central government, the XPCC enjoyed special political treatment as a unique economic and semi-military organization. Although from 2005 the XPCC coordinated its retirement benefit increase plans with the government of Xinjiang Uygur autonomous region, its special political identity makes it inappropriate for the kind of inter-regional comparisons conducted in this study.

³⁴ For detailed sources, please see the Excel document at https://sites.google.com/site/retirementbenefitsources/sources, accessed September 23, 2016. Most of the data are taken in the form of retirement income per person from the documents mentioned in the text. On some occasions it has been necessary to infer the retirement income figure. For example, on some occasions the document will list the retirement income increase for a province for a particular year, instead of the level of retirement income. In such a case the amount of the increase is simply added to the prior year's level, or subtracted from the subsequent year's level. The latter is preferable because the subsequent year's increase is based on (and contains) the increase being measured. In a few cases the document reports the increase amount and the increase percentage rate; and the retirement income level is inferred from them. Actual data for 2014 were not available and for that year estimates appearing in the documents were used instead.

³⁵ For example, Cai Xiaoshen, and Zhang Ruili, ‘Wo guo jiben yanglao baoxian shuiping diqu chayi de yingxiang yinsu zhi shizheng fenxi’ [‘Empirical Analysis of the Factors of Regional Disparity of Basic Retirement Insurance Level in China’], Dalian keji daxue xuebao (Social Sciences) 30(1), (2009), pp. 93–97; Xiaoyin Xu, and Limiao Han, ‘Shehui baozhang he diqu jingji chayi: 1996-2004 mianban shuju fenxi’ [‘Social security and inter-regional economic disparity: 1996–2004 panel data analysis’], Shanghai jingji yanjiu 12, (2006), pp. 12–19; Bingwen Zheng, and Mou Bing, ‘Yanglaojin diaodai jizhi cunzai de wenti yu jianyi – jiyu 2008 nian yanglaojin shangtiao de anli fenxi’ [‘Problems and suggestion on retirement benefit increase mechanism: Based on the case of 2008 retirement benefit increase’], Hongguan jingji 122(1), (2009), pp. 10–13.

³⁶ In China, most pension pools are administered by municipal/county level governments. Provincial governments give these lower governments basic guidelines, and the sub-provincial governments then make specific policies. This approach applies to the pension benefit increase discussed here. The authors were unable to collect information of all these pension administration units, and provincial data were perforce used.  Indeed, such data may not exist. To be sure, there are sometimes considerable within-province variations. As provincial governments were granted power to make policy decisions on benefit adjustment and are directly accountable to the central government, aggregating the annual increase rate at the provincial level would seem to be an appropriate option as well as the best practical course.

³⁷ Zhang Shuguang’s speech at the 2012 Thirty-People Forum of Social Security, cited in Wenjiong He, Lei Hong, and Xinyan Chen, ‘Zhigong jiben yanglao baoxian daiyu tiaozheng xiaoying fenxi’, Zhongguo renkou kexue 3, (2012), pp. 19–30.

³⁸ For example, Lin Lin, and Yan Li, ‘Qiuzhen wushi, dili feijin – 2014 Shaanxi sheng zhengfu gongzuo baogao dansheng ji’ [Looking for the truth and being practical, working hard and moving forward – The production of 2014 Shaanxi Government Work Report] (January 24, 2014), Shaanxi ribao, p. 1; Weiping Liu, Gansu Government Work Report 2012, February 2013. Available at: http://www.farmer.com.cn/zt/dfzfgzbg/201302/t20130205_806640.htm (accessed 29 August 2016); Tianhu Zhang, ‘Hebei: Qi tui renyuan yanglaojin renjun 1745 yuan, gaoyu quanguo’ [‘Hebei: Enterprise retirees retirement income 1745 yuan, higher than the national average’], March, 2012. Available at: http://news.xinhuanet.com/local/2012-03/16/c_122842939.htm (accessed 29 August 2016).

³⁹ Circulation of a Notice of Criticism by the State Council is a form of punishment of a local government and its officials

⁴⁰ Pengjing Zhao, ‘2016 nian yanglaojin zhang 6.5%; gongwuyuan zhang gongzi youwang zhiduhua’ [‘Retirement benefit increase by 6.5% in 2016; civil servants’ salary increase scheme may be expected to be institutionalized’], Jinghua shibao, March 7, 2016. Available at: http://finance.people.com.cn/n1/2016/0307/c1004-28176579.html (accessed 25 August 2016).

⁴¹ ’Quan sheng qiye li tui xiu renyuan yanglaojin tigao 10%, pingjun yue zeng 142 yuan’ [‘Average 10% increase in retirement benefits; average monthly increase by 142 yuan’], Nanfang ribao. Available at: http://www.gd.gov.cn/gdgk/gdyw/201002/t20100202_112992.htm (accessed 25 August 2016).

⁴² ’Yue yanglao jijin jieyu diyi, yue jun yanglao daiyu di Gansu’ [‘With the largest pension fund reserve in the country, Guangdong has lower retirement income than Gansu does’], Nanfang dushi bao, April 7, 2014. Available at: http://epaper.oeeee.com/A/html/2014-04/24/content_2060600.htm (accessed 25 August 2016); Jingwei Cheng, ‘Zhuanjia huiyi Guangdong yanglaojin shuiping diyu gansu: cunzai wujie’ [‘Experts respond to Guangdong’s lower retirement income than Gansu: some misunderstanding exists’], Zhongguo xinwen wang, July 1, 2014. Available at: http://news.xinhuanet.com/fortune/2014-07/01/c_1111408988.htm (accessed 29 August 2016).

⁴³ Xinhua News, ‘China CPI rises 2.6 percent in 2013’, January 9, 2014. Available at: http://news.xinhuanet.com/english/china/2014-01/09/c_133031166.htm (accessed 29 August 2016).

⁴⁴ Robert Holzmann, Aging Population, Pension Funds, and Financial Markets: regional perspectives and global challenges for central, eastern, and southern Europe.

⁴⁵ Jing Lin, ‘Labor mobility without pension portability: migrant workers’ endangered pension entitlement in China’, Asian Social Work and Policy Review 9, (2015): 269–281.

⁴⁶ Jing Lin, ‘Labor mobility without pension portability: migrant workers’ endangered pension entitlement in China’.

⁴⁷ Susan Alford, Bryan Farnen, and Mike Schachet, ‘Affordable retirement: light at the end of the tunnel’, Benefits Quarterly 20(4), (2004), pp. 7–14.

⁴⁸ Martine Humblet and Rosinda Silva, ‘Standards for the XXIst century: social security’ (2002), Geneva: International Labour Office. Available at: http://www.ilo.org/global/standards/information-resources-and-publications/publications/WCMS_088019/lang--en/index.htm (accessed 29 August 2016).

⁴⁹ The rate appears in Suggestion No. 27634 issued by the State Council. However, the document was not released to the public.

⁵⁰ Yuming Han, ‘Yanglaojin shuanggui zhi, liangduan jian xing jian yuan’ [‘Polarization in the dual-track pension system’], Xinjing bao, September 14, 2012. Available at: http://www.bjnews.com.cn/news/2012/09/14/222801.html (accessed 29 August 2016).

⁵¹ Susan L. Shirk, The Political Logic of Economic Reform in China. Shirk argues that China has a particularistic fiscal contracting system, which was initiated during the 1980s and early 1990s. Instead of having a uniform fiscal system, the central government signed contracts with individual local governments on an ad hoc basis, which gave local governments added fiscal autonomy. Local governments may turn to the center to ask for more subsidies. Meanwhile, the center may build a political support base in a locality by rewarding their special reform programs with fiscal support. Shirk believes that understanding this system was crucial for explaining how the center incentivizes local governments to promote the market economy and economic growth.

⁵² Tangning Li, ‘Yanglaojin quanguo tongchou fangan chengxing niannei chutai, gedi jieyu chaju da’ [‘The plan for centralizing the pension program is expected to be issued by the end of the year; huge variables on pension fund balances across sub-national regions’], Jingji cankao bao, (2015). Available at: http://finance.people.com.cn/stock/n/2015/0728/c67815-27371278.html (accessed 29 August 2016).