Chinese government policies to address income inequality
Since 2011’s Social Insurance Law, all workers in China are supposed to be covered by a nationwide social insurance system.
The social insurance system features different schemes for workers in urban and rural areas. Different provinces have different funds and there are differences between the amounts workers and their employers pay in, and the amount of money that is paid out.
Although migrant workers in urban areas are entitled to take part in social insurance schemes. in reality most are only covered by the more basic schemes, or not at all.
China's 'gig economy' has grown in recent years and by the end of 2021 there were 200 million people in flexible employment. Many of these workers do not have formal contracts and the companies they work for do not make contributions to their social insurance.
Unemployment insurance
Workers and their employers contribute to the unemployment insurance system. Contributions are set by provincial or municipal government and in many places the percentage rate of contributions has been lowered to reduce costs for businesses and for workers. As a result, unemployment payments are very low.
Payments have to be made to insurance schemes for a number of years before benefits can be claimed. This makes it difficult for people who have worked for a number of different employers to claim benefits.
As with many parts of social insurance in China, migrant workers and workers in the gig-economy struggle to sign up to unemployment insurance, as the organisations they work for do not recognise them as employees and refuse to make payments for them.
Pension insurance
An urban employee pension plan is paid into by workers and their employers. However, some private companies have failed to contribute. Regional governments do not always enforce payment, which could put off businesses from investing in their area. This has led the national government to reduce the amount that employers have to pay into the scheme.
Workers not covered by the urban employee pension scheme have been encouraged to take up an alternative urban and rural residents' pension. However the level of benefits that can be paid out is much lower.
Although migrant workers in urban areas are entitled to the urban employee pension plan, in reality most are not covered by it. The last official figures released in 2017 estimated that only 22 per cent of migrant workers were signed up.
Tackling regional inequality in social insurance
Funding for social security varies between provinces:
- Coastal areas with more young workers in more highly paid jobs have built up more money to fund pensions and other insurance.
- The north east and central areas have older populations and higher proportions of retired people. These provinces tend to have smaller reserves of money to pay out social benefits. Some are in financial deficit.
To combat this inequality, in July 2019, the central government started a regional pension redistribution plan, taking money from richer provinces to help fund poorer parts of the country.
