China hopes social safety net will push its citizens to consume more, save less

Li Jian, 90, in Houliang Village, China, says he has contributed a lot to his country, but "the government never took care of me." However, this year, he received his first ever pension payment as part of Premier Wen Jiabao's efforts to slowly create a welfare system in China.
Li Jian, 90, in Houliang Village, China, says he has contributed a lot to his country, but "the government never took care of me." However, this year, he received his first ever pension payment as part of Premier Wen Jiabao's efforts to slowly create a welfare system in China. (Keith B. Richburg - The Washington Post)
Line chart showing personal savings rate of China and the United States
By Keith B. Richburg
Washington Post Staff Writer
Wednesday, July 14, 2010

HOULIANG VILLAGE, CHINA -- Ninety-year-old Li Jian fought with his local militia on the Communist side in the 1940s civil war and later volunteered to fight in Korea. "I contributed so much for the country," he said. But he added, with just a hint of bitterness, "The government never took care of me."

That is, until now.

In January, Li received his first pension payment -- about $40 for five months -- and he gets $7.38 more in monthly welfare payments because he is so poor. It's not much, he said, but it buys him cigarettes and the occasional drink.

This is China's version of the welfare state, an expanding web of programs designed to help the sick, the elderly, the poor and the unemployed.

Aside from the individual benefits, there is a larger economic imperative to the new social programs. The country's leaders want to persuade Chinese citizens to spend more and save less, a goal that analysts say could be achieved if the government provided a safety net. Increasing domestic consumption would decrease China's reliance on the American and European export markets for its growth -- a goal also being pushed by Washington and China's other Western trading partners.

The key reason Chinese save so much and consume so little, experts say, is because without dependable government payments, they need to sock away money for the future -- for medical emergencies, for children's educational expenses, as a guarantee against a job loss or to help elderly parents.

"When a person has no medical insurance, unemployment insurance or endowment insurance, how can that person dare spend all their money?" said Tang Jun, a sociology researcher with the China Academy of Social Sciences. "The Chinese people are a nationality that likes saving money. . . . Ordinary people will only feel relieved about consuming if they don't have to worry about not having money when they get old and not having money to go to the hospital."

In the past three decades, since China's great leap into capitalism smashed the old socialist concept of the "iron rice bowl," poor farmers such as Li scrimped by on society's margins -- bypassed by China's growing prosperity and without the helping hand of the state. Lacking any social safety net, the rural poor relied on meager savings and the generosity of their children, who often worked as migrant laborers in the towns.

President Hu Jintao and Premier Wen Jiabao, who came to office in 2003, have made the catchphrase of their tenure "social harmony," which most often means closing the yawning income gap between the cities and rural areas, providing wider access to health care and education, and assisting those left behind by China's breakneck economic growth.

As part of that effort, the government has taken in recent years its first steps toward weaving together a social safety net that includes, for the first time, pensions and medical insurance covering 830 million farmers, expanded unemployment insurance and direct cash payments -- known as a "dibao" -- for the poorest of the poor. Last year, the government put $9 billion into the dibao system, nearly a 70 percent increase over the previous year.

'The future is uncertain'

Analysts say the programs are too new, and the amounts spent too meager, to show any discernable effect in spending habits. But rural spending has ticked up slightly in China mainly because of incentives in the government's stimulus package, including a lower value added tax in the countryside and programs to allow rural residents to buy new appliances at reduced prices. The government wants to create a domestic market for its products to reduce reliance on exports and create a sustainable pattern for future growth.

Many of the programs are in the pilot stage. Here in Hebei province, some farmers said they began paying into the medical insurance fund only this year. Although government assistance is popular, there is some wariness about whether it will last and whether the benefits will be distributed fairly. Besides, the culture of relying on self and family is deeply ingrained.

"I'm still healthy," said Li, sturdy despite his years. "I still need to farm and sell food to make a living. . . . My family treats me well -- what else do I need?"

Li's daughter-in-law, Zhang Yuxia, 52, agreed. "Right now, we try to do more work and save more money," she said. "In the future, I think we have to rely on our kids. In China, you cannot predict the government very well. The future is uncertain. It's more reliable if we depend on ourselves."

Their village, Houliang, is in Luanping county, rated one of China's poorest. It is just 93 miles, but a world away, from the skyscrapers and shopping malls of Beijing. Many of the young men from this area go to work on the construction sites in China's big cities. Houliang and villages like it are filled with women, the elderly and small children.

Wen, the premier, visited this county in 2000 and 2005 and again in January, returning each time to the same village, Pianqiao. During the National People's Congress in March, Wen suggested that journalists visit the area, saying, "You'll learn that the development of Beijing and Shanghai cannot represent the whole China."

Su Hongxi, 69, met Wen on each of his visits to Pianqiao, the first coming when Su was the village's Communist Party chief. Su said he appreciates the reforms, including the new pension money he began collecting this year. But, he said, "right now, the money is not enough. I hope the government can increase the pension a little bit. . . . The changes have happened on the surface. There's been no real change in life."

'A long way to go'

Economists and other experts said establishing a social safety net will become essential for China down the line because of a rapidly aging population, the existence of fewer children to support their parents due to the "one child" family planning policy and the migration of younger Chinese to the cities.

"The family protection function is going to be weakened," said Tang, the researcher at the China Academy of Social Sciences. "For the old in the countryside, they can no longer depend on the family support."

Still, experts said it will be a long time before China's social system approaches the level that is needed. "For years, the government was absent in taking care of the weak groups," said Han Keqing, an assistant professor at Renmin University. "The increasing investment in the rural social security system demonstrates that the government realized the farmers should not be ignored."

But he added, "There is still a long way to go."

Researcher Zhang Jie in Beijing contributed to this report.

© 2010 The Washington Post Company