Pensions for Farmers: An unpaid historical debt and a hidden reality

For the past decade or so, the imbalance between contributions and payouts in the basic pension scheme for employees has been the main focus of debate about China’s pension system. Less discussed has been its structure. China has made great efforts to equalise pensions across regions and groups, yet the differences remain vast: retirees in different schemes differ markedly in their sources of income and in the fiscal subsidies they receive. In recent years, however, the fairness of the different tiers of old-age security has drawn more and more public attention. According to the China Labour Statistical Yearbook, in 2024 elderly people actually drawing benefits from the urban and rural residents’ pension received an average of 246 yuan a month. By comparison, the average pension of retired enterprise employees was 3,340 yuan, and that of retired staff of government agencies and public institutions 6,446 yuan.

Beyond academia, self-media, mainstream media and brokerages have all called, or suggested, loudly that farmers’ pensions be raised to, say, 800–1,000 yuan a month, with public finance covering the gap. But fiscal subsidies have continued on their earlier path, rising by 20 yuan per person per month each year, far short of 800 to 1,000.

Table 1. Pensions and fiscal subsidies by scheme, 2016–2024

Source: calculated from the China Labour Statistical Yearbook and annual final accounts of the national general public budget. Average pension and average fiscal subsidy = fund expenditure (or fiscal subsidy to the fund) / number of retirees. Note: the pension system for government agencies and public institutions was merged with the employees’ system from 2015, so the number of retirees from these units recorded in the Yearbook rose gradually after 2015 and has been broadly stable in recent years.

Why are pension benefits so vastly different between groups? The official explanation is that it depends on whether people contributed while working. But that is only the surface. The gulf is rooted in the particular path of China’s modernisation. To discuss farmers’ pensions is to discuss how the costs and benefits of the country’s industrialisation and urbanisation were shared, and to examine historical justice against the logic of present-day politics.

The historical record: three uncompensated expropriations

After several rounds of reform to basic pension insurance, China’s system now runs on two tracks: an urban employees’ pension with high contributions and high benefits, and an urban and rural residents’ pension with low contributions and low benefits. In theory the former is funded by “contributions”, with rights matching obligations, so those who did not contribute cannot enjoy high pensions. Some people therefore argue that retired employees deserve high pensions, while the elderly covered by the residents’ scheme mostly paid no “contributions” when young and so have no claim to high benefits.

This view cannot withstand scrutiny from any angle. Over a longer timeline, the two pension systems rest on a deliberately folded-away historical premise: China’s urban–rural dual system systematically deprived rural residents of welfare and opportunity and channelled rural wealth one way into the cities. That farmers had no access to non-farm jobs and could not contribute to the employees’ pension was not a failing of ability but the result of deliberate institutional segregation.

First and foremost was unequal access to employment. Most urban employees now retired were born before 1965, and before 2000 most worked for urban state enterprises. They could retire as “employees” because they were allowed to work in the cities, and at the time seven or eight in ten urban jobs were in state or collective enterprises. Young people today know little of that history: before 2000, working in a city was a “privilege”, a “right” held only by those with urban household registration. In Beijing, for example, not until the mid-1990s did the rules begin to allow outsiders to work or do business in the city, and then only if the employer applied to the labour bureau for an “Employment Permit for Non-Local Persons”, which was issued subject to an overall quota and a series of conditions on the worker, including marital and childbearing status and a temporary residence permit.

Institutional discrimination against the agricultural population kept China’s urban–rural income gap persistently high. In 1997, before the reform of state enterprises, urban residents’ per capita disposable income was 2.5 times that of rural residents. It also meant that, however hard they worked, the vast majority of the agricultural population could never become employees. Nor should it be overlooked that before 1998 the great majority of urban employees never actually paid pension contributions (neither they nor their employers contributed); their years of service were “deemed as contributions”, and on retirement they drew their pensions directly from the funds built up later.

If the low wages urban employees earned back then (still far higher than farmers’) can be treated as a hidden “contribution”, then farmers too contributed to China’s modernisation, and contributed more, not less. I have set this out in detail in an article in China Reform; the key points are summarised here.

Since the 1950s, Chinese farmers have been owed three historical debts by the state and its cities, none of them repaid.

First, primitive accumulation through the price “scissors” between farm and industrial goods. From the 1950s to 2000, China used administrative power to hold down the prices of farm products and raise those of industrial goods, completing the primitive accumulation of capital for heavy industrialisation through the “price scissors”. According to research by Yan Ruizhen and others, in 1978, when the scissors were widest, the gap amounted to 36.4 billion yuan, equivalent to 10 per cent of that year’s GDP. For every 100 yuan of output farmers produced, 25.5 yuan was transferred to the cities without compensation. This vast hidden tax laid the initial foundation of China’s industrial modernisation, at the price of completely depriving agriculture of the capacity to expand and keeping generations of farmers on the edge of subsistence. The far higher living standards and workplace benefits urban employees enjoyed were ultimately underpinned by the surplus clipped from farmers.

Table 2. The price scissors between industry and agriculture, 1952–1987

Source: Yan Ruizhen et al., “The Current State, Trends and Remedies of the Price Scissors between Industrial and Agricultural Products in China”, Economic Research Journal, 1989.

Second, the expropriation of urbanisation’s dividends through the land “scissors”. From the late 1990s, China’s urbanisation raced ahead and the built-up area of cities expanded rapidly. The land came from two sources: demolition of old buildings in urban areas and requisition of rural land on the urban fringe. Official statistics show that from 1987 to 2001 urban construction took 33.95 million mu of farmland, and from 2003 to 2017 another 63.88 million mu of agricultural land was requisitioned. In this transfer, which affected more than 80 million farmers who lost their land, compensation was not based on market value but on a multiple of the land’s annual agricultural output (usually no more than thirty times). By contrast, although urban demolitions also involved violence and low prices, compensation was based on the price of construction land, far higher than for agricultural land. This model of requisition, compensating at agricultural value while profiting at the market price of non-agricultural construction land, squeezed every drop of differential rent out of the change in land use. It became the primitive accumulation behind local governments’ urban expansion and “land finance” since 2000, and the source of the net government revenue from the land-sale fees that have ballooned over the past decade and more. Most farmers not only failed to share in the rising land values of urbanisation but lost their most important means of production. A 2003 survey of landless farmers by the National Bureau of Statistics found that 46 per cent of households saw their income fall and 11 per cent saw no change; a 2009 paper by Peng Kaili found that only 12.33 per cent of farmers thought their household income and living conditions had improved after requisition. This was the second institutional expropriation of farmers’ property rights.

Third, the one-way extraction of population and intergenerational support. In effect, under China’s pay-as-you-go system, children raised by rural parents move to the cities and pay the pensions of urban retirees. Population movement is the most profound shock China’s pension system faces. Under pay-as-you-go, the pensions of today’s urban retirees are actually paid by the young people now working, and many of them come from the countryside. Because of household registration barriers, exclusion from public services and the high cost of urban life, these rural young people working and paying social insurance in the cities not only cannot bring their parents to live with them and enjoy urban health care and support; their current income is compulsorily diverted into the employees’ social insurance pool to support urban retirees. This in effect weakens their ability to support their parents in the countryside. Though the price scissors between town and country are gone, rural families’ most valuable asset, their children, continue as the new generation of workers to contribute to urban pensions. The countryside bore and raised the city’s workforce; that workforce went to the city to generate tax revenue and pay social insurance; and their ageing parents were left behind in the villages, with no employee pension and without ample support from their children. This is the countryside’s third historic subsidy to the city.

Even without reopening the historical accounts, the current distribution of fiscal subsidies perpetuates the unfairness. In 2021, subsidies from all levels of government to the urban enterprise employees’ pension amounted to 482.8 yuan per retiree per month, nearly three times the 163.9 yuan received by farmers. The ratio had narrowed somewhat by 2024, but the absolute gap was still widening. Then there is the central adjustment fund (a national pool that transfers pension surpluses from richer provinces to deficit ones), which in effect has rural-born workers in Guangdong and elsewhere compensating urban retirees in the three northeastern provinces. To say nothing of the large subsidies to government agencies and public institutions, whose pension system merged with the enterprise employees’ more than a decade late, and whose staff enjoyed even more generous retirement benefits without contributing. The highly protected get high subsidies and the poorly protected get scraps. Far from making good the historical debt, the current design entrenches the gulf in distribution.

A frozen gulf: the inertia of the dual system and continuing discrimination

To be fair, China’s economic strength today is far beyond what it was around 2000, social security is steadily improving, and basic health insurance coverage has even reached the level of developed countries. Why, then, do pensions still differ so enormously between people of different status? The root is that the deep institutional inertia of the urban–rural dual system established in the 1950s has still not been fully broken.

From the 1950s, urban areas gradually stopped recruiting workers from the countryside, and in 1958 the Regulations on Household Registration took effect. Around the household register grew an entire, tightly organised system of status hierarchy and resource allocation between town and country. In the planned economy it determined everything: grain rations, employment, health care, education and old age. Holders of urban registration had far higher rates of non-farm employment and far better pensions, health care and other benefits than rural residents; even statutory death compensation differed enormously between town and country. To keep this system running, the state used all sorts of means to suppress farmers’ rights. Until 2010, for example, each rural deputy to the people’s congresses represented four times as many people as each urban deputy. As the market economy deepened, China abolished the system of “custody and repatriation” in 2003, so that farmers could come to the cities freely without fear of detention and deportation; Beijing and other cities scrapped permit requirements for most occupations only in 2005; and the practice of “different prices for the same life” in death compensation ended nationwide only after 2020.

Today the barriers the dual system once placed on labour mobility, enrolment in compulsory education and enrolment in employee social insurance have been removed. Enrolment in the welfare-like residents’ health insurance outside one’s place of registration and cross-regional settlement of basic health insurance claims are being rolled out nationwide, and in many places rural–urban labour mobility is actively encouraged. But the institutional inequalities attached to status remain hidden and firmly entrenched. Farmers can work in the cities, for instance, but the public services they receive are incomplete: their children’s access to compulsory education often comes with conditions (housing, parents’ social insurance contributions and so on). Most fundamental is the inequality of property rights. After housing reform, urban land and housing became market assets with near-complete property rights, through which urban residents enjoyed the greatest asset appreciation of China’s economic take-off. The countryside still has a land system tied to collective membership: homestead land and contracted farmland cannot be freely transferred, sold or mortgaged. The greatest potential wealth farmers own is locked in a static structure without liquidity, and cannot be turned into capital for old age.

A greater hidden unfairness is that, for the first generation of young and middle-aged people to settle in the cities, decades of the dual system left them far behind their peers whose families had lived in the city for a generation or two. The cities where they settle demand contributions from them, requiring new residents to pay employee social insurance, buy property and stay continuously employed before they can enjoy rights such as compulsory education and further schooling for their children, while refusing to let them bring their family burdens with them. In the big cities, including several first-tier ones, the bar for spouses and children to move with a worker and register is already high, and for parents and other extended family it is higher still. Some big cities that had allowed newly registered residents to bring their parents have been tightening the rules again. In other words, there are institutional obstacles to solving the problem of rural elderly care within the family.

So, although the harshest forms of the urban–rural dual system have gradually receded on the surface, another dualism, sometimes hidden and sometimes visible, still shapes many people’s lives. It affects migrants not yet registered in the cities (who cannot fully enjoy the rights of urban residents) and new residents who have registered but whose parents remain in their home villages (they support their parents themselves, while the parents of long-standing urban residents are supported by the state). These people have worked harder than native city-dwellers just to gain a foothold in the same city, yet still carry heavier burdens.

Seen in this light, it is clear that the “second-class” fiscal subsidies for farmers’ pensions are a link embedded in China’s urban–rural dual system, and should come as no surprise. But it also means that until the dual system undergoes structural change, farmers’ pensions are unlikely to be treated fairly.

Farmers’ social security as a product of competition between ministries

If historical inertia explains where the system came from, another question remains. Why were the New Rural Pension Scheme (later merged into the urban and rural residents’ pension) and the New Rural Cooperative Medical Scheme (later merged into the residents’ health insurance) created in the first place? If the state could build systems and pay out money then, why is it unwilling to expand them now?

China’s contemporary social security system was set up to support the reform of state enterprises and relieve laid-off urban workers of their worries. Designed from the early 1990s and formally launched around 1998, it was tailor-made from the outset for “formal urban employees”, with high contributions and relatively high benefits, and it left a huge historical hole: the “deemed contribution years” of employees already retired or in work at the time had never actually been paid for.

When social security was extended to the countryside (with the New Rural Pension Scheme of 2009, for example), its logic was entirely different from the employees’ pension. The extension began in the early 2000s, against the background of increased state investment in rural areas; in several years the Central Committee’s “No. 1 Document” (the first policy document the Party Central Committee issues each year) focused on rural issues. Investment grew step by step: from 2003 the rural tax-and-fee reform was pushed hard and the New Rural Cooperative Medical Scheme launched the same year; in 2005 a mechanism to guarantee funding for rural compulsory education was set up; in 2009 came the New Rural Pension Scheme.

Several features of this period deserve attention. First, the countryside and education, once neglected areas, gradually received more fiscal priority. The new funding mechanism for rural compulsory education, in particular, created a system of central investment by item and by proportion, with the centre taking on ultimate responsibility for what had been local duties. The new rural health and pension schemes were born in this context (why this shift happened is another question).

Second, the new rural health and pension schemes were to a considerable extent products of competition between ministries for their own interests. Under the traditional arrangement, only employees (of government agencies, public institutions and enterprises) had pensions and health benefits, and each ministry ran social benefits for the people under its own jurisdiction: social security belonged to the relevant ministries. Free medical care for government and public-institution staff, for instance, was run by the Ministry of Health (the treasury allocated funds to health, which then pooled them), while enterprise employees’ pensions and health care were run by the labour authorities. When labour insurance was socialised in 1998, free medical care for government staff and enterprise employees’ labour insurance were both transferred to the labour and social security authorities, leaving the Ministry of Health marginalised in the business of managing money. In this context, and coinciding with the state’s wish to invest in the countryside, the Ministry of Health, with the intervention of the leadership, actively used the New Rural Cooperative Medical Scheme to expand its administrative power, with its eye on the management of health insurance, both employees’ and residents’, which should have been the turf of the reorganised Ministry of Labour and Social Security. The Ministry of Health had its reasons: after SARS the grassroots health system had to be rebuilt, and that was hard to do if it ran the services but not the money.

The New Rural Pension Scheme followed a similar logic. The old rural pension scheme before 2000 had been run by the civil affairs authorities, but it was funded mainly by individual contributions and, after the shock of the Asian financial crisis, had all but collapsed. As the state poured money into the countryside, the newly formed Ministry of Labour and Social Security expanded its remit, seeking to bring rural pensions into its larger social security system. With the successful precedent of the rural health scheme already set, it persuaded the leadership to adopt a model led by “fiscal subsidies” in place of the civil affairs ministry’s failed model based mainly on “individual savings”.

This pattern of competition between ministries, and of shifting alliances between ministries and local governments, has continued. Take the “merger of the three health insurance schemes”. As early as March 2013, the State Council ordered the responsibilities for urban employees’ health insurance, urban residents’ health insurance and the New Rural Cooperative Medical Scheme to be integrated by the end of June 2013, yet it was not implemented until 2018. Public information shows that before the dust settled, some provinces favoured putting the merged scheme under the human resources and social security authorities and others under the health and family planning authorities. Some studies note that certain ministries even intervened directly in local governments’ integration decisions, forcing some localities to yield to pressure from above, so that integration stalled for years.

None of this bears directly on farmers’ pensions, but it shows that they are not a simple two-way relationship between government and residents. Their birth, and their later expansion or contraction, arise from a complex interplay of competition between ministries, cooperation between localities and central ministries based on local calculations, and adjudication by the leadership.

Stability and the political economy of distribution: why farmers’ voices go unheard

The analysis above shows that farmers’ voices have had little influence on the creation and adjustment of their pensions, which owe more to competition between ministries and bargaining between provinces and ministries. And the pattern of ministerial competition depends in turn on how power is divided: when power is dispersed, with “nine dragons managing the waters” (too many agencies sharing responsibility for the same thing), competition arises easily and welfare expands easily. But when expansion runs into certain constraints (fiscal pressure, for example), it faces a dilemma: either stop expanding and endure the corresponding pressure (dissent, say), or keep expanding and let another pressure grow (debt risk, say). The choice depends on which pressure is harder to bear.

Let us do the sums. In 2024, 180 million people drew benefits from the urban and rural residents’ pension. The current average pension is about 250 yuan a month, of which the average fiscal subsidy is about 200 yuan, for an annual fiscal subsidy of about 425 billion yuan. To raise the pension from 250 to 1,000 yuan a month, the average subsidy would have to rise to more than 900 yuan, with almost all of the increase borne by the treasury: for 180 million people, about 1.94 trillion yuan a year, an increase of about 1.5 trillion. Even raising it only to 800 yuan a month (with the treasury paying 700 yuan a month) would add more than a trillion yuan in subsidies.

How large is that? At present, raising the residents’ pension by 20 yuan a month each year costs about 43 billion yuan in new spending; the proposed childcare allowance for children under three would cost about 100 billion yuan a year, and that is already a heavyweight welfare policy of direct “investment in people”. Clearly, raising farmers’ pensions to 800–1,000 yuan is all but impossible under the current decision-making structure.

On the other hand, the sum is not outlandish. In 2024 fiscal subsidies from all levels of government to retired enterprise employees came to about 810 billion yuan (for 125 million retirees), plus about 250 billion yuan in net contributions from Guangdong and elsewhere to the central adjustment fund; subsidies to the pension fund for government agencies and public institutions reached 644 billion yuan (for about 23 million retirees). By this yardstick, 1,000 yuan a month for farmers may be on the high side, but 800 yuan is within the “appropriate” range, roughly matching the per capita fiscal subsidy and net adjustment funds received by retired enterprise employees.

Fiscal pressure is certainly considerable, but governments at every level also spend a great deal each year. For comparison: in recent years China has issued some 3.8 to 4 trillion yuan of new local government special-purpose bonds a year. A large share of this money goes into areas with very poor economic returns, and repayment at maturity depends entirely on refinancing. So although special-purpose bonds are nominally revenue bonds, their real net returns are limited and the pressure of servicing them is great, especially since a high proportion has gone to lower-tier cities and regions that depend heavily on central transfers and are steadily losing population.

Table 3. Local government special-purpose bonds by issuing level and use, 2018–2022

Source: China Local Government Bond Information Disclosure Platform.

So the question arises: why do retired staff of government agencies, public institutions and enterprises receive so much more fiscal care? Why can projects with very low returns and doubtful prospects of repayment obtain the guarantee and support of the fiscal and financial system?

Local special-purpose bonds usually fund large numbers of costly engineering projects, and around these projects live local elites, state enterprises and contractors at every level. This is a vast ecosystem of interests dependent on government projects, with a formidable capacity for collective action. Issuing bonds and building projects corresponds to keeping this system stable.

The welfare of urban retirees is maintained by a similar logic through a different mechanism. First, these groups are far better organised than farmers, share a common identity, and face a much lower threshold for collective action than scattered rural elderly; most live in city centres, so their actions are far more visible and influential than anything in the countryside. Second, policy signals travel fast and far. Even retired enterprise employees have complex social networks, with dense personal ties to people still working and to cadres inside the system. Cutting the benefits of any one of these groups sends a signal to other employees, inside and outside the system, and shakes their confidence in the system’s promises. Finally, the employees’ pension and health schemes have run for many years and have become highly rigid; any downward adjustment is a visible expropriation. Farmers’ pensions are easy to raise in the short run, but once they have been paid for a few years they too become rigid. Even though this group has little capacity for collective action, cutting benefits after raising them would create pressure that could not be ignored. So for the fiscal authorities, it is vital not to create “expectations of rights” this group does not yet have. In fact, when the new rural pension and health schemes were introduced, the fiscal authorities resisted considerably; it was only because the ministries’ claims conflicted and fiscal pressure was then bearable that decisions tilted towards the sectoral ministries.

Back to the dilemma at the start of this section: when finances are under pressure, the choice depends on which pressure is harder to bear. For special-purpose bond spending and employees’ benefits, the groups concerned have low costs of collective action, transmit signals quickly and pose a direct, tangible threat to stability, so their spending is the last to be cut. Rural people are at a disadvantage on all three counts: scattered, unorganised, far from the political centre and without an institutionalised language of rights. Even when tragedies befall rural elderly people in extreme poverty, they rarely become the focus of public attention; and when they do, attention is hard to sustain. Faced with them, fiscal pressure ranks higher. The distribution of fiscal resources has never been simply a question of “who needs it more”, but of “whose discontent is harder to bear”.

A curious phenomenon: why do we so often see news about “raising farmers’ pensions”, while discussion of “raising employees’ retirement age” rarely appears in public, even though the latter group is far more capable of collective action? This essay will not go into it, but one known fact is that the residents’ pension is mainly the responsibility of the central treasury: the centre pays the full basic pension set by the state for the central and western regions, and 50 per cent for the eastern regions.

Conclusion

Although this essay began by discussing farmers’ historical entitlement to a decent pension, its point is not to argue at what level farmers’ pensions should be set. What it seeks to show is that the present state of farmers’ pensions is not an isolated policy defect but a natural result of China’s urban–rural dual system. From the price scissors of the 1950s to today’s gap in fiscal subsidies, the underlying logic has been consistent: the countryside supplies resources to the city, and in the bargaining over distribution farmers have always been the least organised and the least heard. Until that structure changes fundamentally, farmers’ pensions will probably “have to” keep giving way to fiscal pressure; each increase owes less to the assertion of rights than to the spillover effects of competition between sectoral authorities at particular moments.

But to acknowledge structural constraints is not to give up looking for room within them. Since raising pensions head-on meets enormous resistance in the current decision-making structure, one might go around that route and start by lowering the actual cost of old age for rural elderly people. China’s migrant population is enormous. If policy genuinely lowered the barriers to elderly parents moving to the cities with their children, granting accompanying elderly people the rights of urban residents, shifting fiscal subsidies for elderly care from providers to recipients, and promoting market transactions in farmland and homestead land, then combining family care with urban public services could substantially improve the situation of rural elderly people without greatly increasing fiscal spending. This route faces relatively little resistance and fits the long-term trend of population movement better. It is a systemic project, involving the rural–urban distribution of care facilities, a shift in the mechanism of fiscal subsidies, and ways to ease the burdens on children who move to the cities (housing, health care, social integration and so on). Beyond that, market transactions in farmland and rural homestead land must be advanced: these are farmers’ largest assets, and without being able to cash them in, they cannot settle in the cities with peace of mind.

How far such measures can go will, of course, depend in the end on how far the dual system loosens. Institutional inertia is powerful, but inertia is not destiny.