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2010 OECD Economic Surveys: China 2010

image of OECD Economic Surveys: China 2010

This 2010 edition of OECD's periodic review of China's economy finds that China's spectacular expansion has continued in recent years, making for impressive improvements in living standards. The slowdown associated with the global financial and economic crisis was contained by massive fiscal and monetary policy stimulus, which has boosted domestic demand. This survey includes chapters on recent achievements and prospects, monetary policy, financial reforms, product market regulation and competition, inequality, the labour market, old-age security and the health care system.

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Providing greater old-age security

China’s population is set to age fast, owing to low fertility and rising life expectancy. With ongoing migration of the younger cohorts to urban areas the increase in the old-age dependency ratio will be more pronounced in rural than in urban areas. Very different pension arrangements exist across the country, with diverse and segmented systems in urban areas, belated retirement and low replacement ratios in rural areas, and special rules governing public sector pensions. Labour mobility is impeded by some of features of the current pension system, not least limited benefit portability. Urban pensions underwent parametric reform in 2005 and some geographical pooling was introduced more recently. Measures were also taken in 2005 to raise the coverage of the self-employed and those with flexible forms of employment. A new rural pension scheme was announced in mid-2009 and provisions to cover migrants were proposed. Some of the recent reforms added to the existing fragmentation, while others, notably those providing for greater geographical pooling, have only partly been implemented. Also, under current rules, effective replacement rates are fairly low and projected to decline further, both for rural and urban residents, which may be difficult to sustain with the elderly living less and less with their descendants. Furthermore, as the countryside ages, much of the additional burden will be shouldered by local governments with insufficient resources. These challenges can be addressed by gradually consolidating the various regimes, raising retirement ages and shifting more of the cost of rural pensions to the central government. Even if different schemes for different categories of workers were to persist, each should be unified over time, first provincially and then nationally, phasing out the urban-rural distinction.

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