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«D I R E C T I O N S I N D E V E LO P M E N T Human Development Public Disclosure Authorized The Elderly and Old Age Support in Rural China Challenges ...»

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Public Disclosure Authorized

Public Disclosure Authorized


Human Development

Public Disclosure Authorized

The Elderly and Old Age

Support in Rural China

Challenges and Prospects

Fang Cai, John Giles,

Philip O’Keefe, Dewen Wang

blic Disclosure Authorized

The Elderly and Old Age Support

in Rural China

The Elderly and Old Age

Support in Rural China

Challenges and Prospects Fang Cai, John Giles, Philip O’Keefe and Dewen Wang © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com.

All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org.

ISBN: 978-0-8213-8685-9 eISBN: 978-0-8213-8903-4 DOI: 10.1596/978-0-8213-8685-9 Cover design: Naylor Design, Inc.

Cover photo: iStockphoto.com Library of Congress Cataloging-in-Publication Data has been requested Contents

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Many countries face policy challenges related to the well-being of their aging populations, and China is no different. What distinguishes it is that rapid population aging is occurring in society at a significantly lower income level than in members of the Organisation for Economic Co-operation and Development or, more recently, East Asian countries.

Although the broad direction and scale of the aging transition in China have been known for some time, less work has been done to understand the household-level effects and implications for public policy. This book looks at the well-being of rural elderly people, a substantial and growing share of China’s elderly population and one that faces particular problems.

It first provides detailed empirical analysis of the welfare and living conditions of the rural elderly since the early 1990s in the context of large-scale rural-to-urban migration. It then goes on to explore the evolution of the rural pension system in China over the past two decades and to raise issues on that system’s current implementation and future directions.

Several findings emerge that have implications well beyond pension policy. First, aging is going to be faster in rural than urban areas, with the rural old-age dependency ratio rising by more than two and a half times by 2030 and the gap with urban areas widening. The book also shows that rural elderly people have, to date, been significantly worse off, relative

xixii Foreword

both to urban elderly people and to younger rural people. This finding occurs even though the rural elderly have longer working lives and save a substantial share of income across their life cycle. Rural elderly people remain much more dependent on their own labor and on support from their families than the urban elderly, who have historically had higher access to government pensions.

The mass rural-to-urban migration that has happened in China since the 1990s is changing the context of family support to rural elderly people. This change can be seen in the rapid shift in living arrangements in rural areas, where co-residence of rural elderly with their adult children fell from 70 percent in 1991 to 40 percent by 2006. The book documents the complex dynamics of migration and household behavior, with positive effects on elderly rural incomes from migrant remittances, but also sometimes burdensome obligations for the rural elderly to continue working the land into old age and to care for their “left behind” grandchildren.

The Chinese authorities have initiated policies that seek to strengthen public support to rural elderly households. A national Rural Pension Pilot Scheme was introduced in late 2009 and has been rapidly expanded subsequently, with full geographic coverage planned by end-2012. A national rural social assistance program (dibao) was rolled out in 2007 and now covers close to 50 million people, many of them from poor rural elderly households. The New Cooperative Medical Scheme of health insurance has been rapidly expanded, achieving around 95 percent coverage. It has been of particular value for older people in rural areas.

The book is a collaborative effort between the Institute of Population and Labor Economics of the Chinese Academy of Social Sciences and the World Bank. It has benefited from insights from officials in the Ministry of Human Resources and Social Security and the Ministry of Finance, as well as from those of colleagues at the World Bank. The Bank hopes the book will not only contribute to deepening the understanding of demographic change in rural China but also highlight the substantial knowledge gaps that remain. How the country manages the aging of its population will be one of the major challenges it faces in coming decades, the success of which will have implications for not only China but also the whole world.

Klaus RohlandCountry Director for ChinaWorld Bank, BeijingAcknowledgments

This book is based primarily on two background studies that were produced as part of a collaboration with the Chinese Academy of Social Sciences (CASS) Institute for Population and Labor Economics. The first study, titled “The Well-Being of China’s Rural Elderly,” is by Fang Cai (CASS), John Giles of the World Bank’s Development Economics Research Group (DECRG), and Dewen Wang of the East Asia Human Development Sector Social Protection Unit (EASHS). It is the basis for chapters 1–4. The second study is by Yuning Wu from the Chinese Academy of Labor and Social Security (CALSS) and it informed chapter 5. In addition, chapters 5 and 6 drew upon work of Philip O’Keefe for the World Bank China Pensions Framework Paper (World Bank forthcoming). The study was initiated by Xiaoqing Yu of the Human Development Unit in the East Asia and Pacific Region of the World Bank (EASHD) and was subsequently comanaged by Philip O’Keefe (EASHD) and John Giles (DECRG). Lansong Zhang and Limei Sun also assisted in finalizing the draft. The study benefited from internal review within the World Bank and, in particular, peer review by Robert Palacios (South Asia Human Development Department) and John Blomquist (Middle East and North Africa Human Development

xiiixiv Acknowledgments

Department). The sector director who guided preparation was Emmanuel Jimenez (EASHD). The team also benefited from useful discussions with Ardo Hansson (EASPR), Mark Dorfman (Human Development Network Social Protection and task manager of the China Pensions Framework Paper), Robert Holzmann (special adviser), and Yvonne Sin (Tower Watson).

Contributors Fang Cai is professor and director of the Center for Population and Labor Economics at the Chinese Academy of Social Sciences. A leading and influential economist and demographer in China, Professor Cai coauthored the influential books The China Miracle: Development Strategy and Economic Reform (2003) with Justin Lin and Zhou Li and The Chinese Economy: Reform and Development (2009) with Justin Lin and Yong Cao.

John Giles is senior labor economist in the Development Research Group at the World Bank. His current research interests include the movement of labor from agricultural to nonagricultural employment, internal migration and its effects on households and communities, poverty traps, household risk-coping and risk-management behavior, population aging and retirement decisions in developing countries, and the relationship between social protection systems and labor supply decisions. Prior to joining the World Bank in 2007, he was associate professor of economics at Michigan State University.

Philip O’Keefe is lead economist and Human Development Sector coordinator for China and Mongolia in the East Asia and Pacific Region of

–  –  –

the World Bank. He has worked on social protection, labor market, and social services in Eastern Europe and Central Asia, India and Nepal, and the Pacific Islands. Prior to joining the World Bank in 1993, he was university lecturer in International Economic Law at the University of Warwick, U.K.

Dewen Wang is social protection economist in the World Bank’s Beijing Office. His work focuses on China’s social insurance and social assistance programs, labor market dynamics, demographic transition, and population aging. He was professor and division chief of the Institute of Population and Labor Economics, Chinese Academy of Social Sciences, before he joined the Word Bank Social Protection team.

Abbreviations ADL activity of daily living CASS China Academy of Social Sciences CHNS China Health and Nutrition Survey CPC Communist Party of China CURES China Urban and Rural Elderly Survey GDP gross domestic product IPLE Institute of Population and Labor Economics MDC matching defined contribution MHRSS Ministry of Human Resources and Social Security MOA Ministry of Agriculture MOCA Ministry of Civil Affairs MOLSS Ministry of Labor and Social Security NBS National Bureau of Statistics NDC notional defined contribution NSSF National Social Security Fund OECD Organisation for Economic Co-operation and Development RCRE Research Center for Rural Economy RMB renminbi TFR total fertility rate US$ U.S. dollar xvii Executive Summary Although average incomes in China have risen dramatically since the 1980s, concerns are increasing that the rural elderly have not benefited from growth to the same extent as younger people and the urban elderly. Concerns about welfare of the rural elderly combine spatial and demographic issues. Large gaps exist between conditions in coastal and interior regions and between conditions in urban and rural areas of the country. In addition to differences in income by geography, considerable differences exist across demographic groups in the level of coverage by safety nets, in the benefits received through the social welfare system, and in the risks of falling into poverty. In particular, older residents of rural China may be more likely to be left behind than younger cohorts and their urban elderly peers because of lack of pension support, insufficient savings, and migration of adult children. The China poverty assessment estimated that the elderly made up 8.5 percent of China’s poor in 2003, and that 12.8 and 13.0 percent of elderly men and women, respectively, lived in poverty (Chaudhuri and Datt 2009).

It did not, however, examine separately the poverty status of rural and urban elderly, nor did it look in detail at the sources of support, saving behavior, and other issues associated with the elderly population, particularly the rural elderly.

2 The Elderly and Old Age Support in Rural China This book aims to do two things: first, it provides detailed empirical analysis of the welfare and living conditions of the rural elderly since the early 1990s in the context of large-scale rural-to-urban migration, and second, it explores the evolution of the rural pension system in China over the past two decades and raises a number of issues on its current implementation and future directions. Although the two sections of the book are distinct in analytical terms, they are closely linked in policy terms: the first section demonstrates in several ways a rationale for greater public intervention in the welfare of the rural elderly, and the second documents the response of policy to date and options to consider for deepening the coverage and effects of the rural pension system over the longer term.

The section on welfare of the rural elderly (chapters 1–4) attempts to answer several questions that are relevant to understanding the rationale for public support for the rural elderly.1 First, it examines demographic trends to establish the extent of aging and old-age dependency over time in China. It then explores the incidence of poverty and vulnerability among the rural elderly, both over time and relative to other groups of the population. After finding cause for significant concern related to rural elderly poverty and vulnerability, it then looks at the evolution of sources of support for the rural elderly to assess their relative importance and effects on household incomes. Given their importance, own-labor income and support from family are treated in more detail. Finally, the first section looks at saving behavior among both the working-age and elderly populations, across the income distribution and over time. The key findings with respect to rural elderly welfare are

as follows:

• Demographic projections for rural China made for this book and based on various fertility and migration scenarios suggest that the demographic transition is accelerating and that aging is far more pronounced in rural than in urban areas (see chapter 1). In 2008, rural and urban old-age dependency ratios were 13.5 percent and 9.0 percent, respectively—a gap of

4.5 percentage points. The gap in old-age dependency ratios will widen to 13.3 percentage points by 2030 when the old-age dependency ratio will reach 34.4 percent in rural areas and 21.1 percent in urban areas.

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