The parlous state of the pension system in the northeast

Among the conditions some 8,000 Heilongjiang teachers who went on strike in November had before they would return to work, one stood out: they wanted a refund of their contributions to the social insurance fund from which money will be drawn to cover their pensions.

Teachers in urban Zhaodong, a city in the northeastern province, were required by the local government to contribute into the fund in 2001. Those in rural areas started payments two years later. As of December 2013, more than 70 percent of workers at government-backed organizations in Zhaodong have started paying into the fund as private company workers do.

In most parts of the rest of the country, employees of government-affiliated organizations, including public school teachers, did not need to contribute to the fund until last July. Their pension came out of government coffers. A reform was tested in 2009 in five provinces and municipalities for the workers to pay into the fund. They do not include Heilongjiang.

The very unusual move by a local government to push through a reform before Beijing requires so underscores a severe challenge regarding pensions that faces the governments in the three northeastern provinces of Heilongjiang, Jilin and Liaoning.

In 2012, Heilongjiang's social insurance fund received 72 billion yuan and spent 71.7 billion yuan. The 300 million yuan surplus was the lowest among all provinces and regions in the country that year.

Demographics are not on the government's side. From 2002 to 2012, the number of workers contributing to the pension fund grew by 1.6 percent every year on average. That was less than one-quarter of the national growth rate. Meanwhile, the number of its retirees has increased by 7.74 percent ever year, 0.29 percentage points higher than the national average. The entire country's population is aging, and it is going to be even tougher for the province to grapple with its pension problem.

The other two provinces also face a similar challenge. In terms of the ratio of fund-contributing workers to retirees, the national average is 3.09, meaning that about three workers support the pension of one retiree. The ratios for Jilin (1.69) and Heilongjiang (1.52) are the lowest in the country. Liaoning has a ratio of 2.15.

Several factors are working against these three provinces. They have historically served as a base of heavy industry and so have clusters of state-owned enterprises. This has resulted in more retirees (and pension-claiming laid-off workers because of the SOE reform in the 1990s) than other provinces.

Also, a family-planning policy restricting couples to only one child has been more strictly implemented in these provinces than elsewhere in general because SOEs have far more control over their workers than private businesses. It means fewer children were born there than in the rest of the country.

In addition, none of the three provinces is an attractive destination for people from other provinces, which in some areas is a major source of new working-age people. From 2000 to 2013, the national population grew by 7.56 percent. The populations of Beijing, Shanghai and Guangdong all increased by more than 20 percent. The figures for Liaoning, Jilin and Heilong are only 4.92 percent, 2.57 percent and 0.74 percent, respectively. It means a net outflow of population for all of them because the provinces' young people are seeking jobs and a better future in other more prosperous regions.

It is obvious that the provinces cannot maintain their pension systems in their current state for long. That explains the urge for Heilongjiang to expand the number of contributors to its social insurance fund.

In the long term, however, these provinces must lift all restrictions on child birth to reverse of the trend of aging population. On top of that, policies should be formulated to encourage people to move into the provinces.

Published in Caixin.com | 2014-12-3