WEBVTT - Why Millions of Young Chinese Are Refusing to Make Pension Payments 0:00:02.759 --> 0:00:09.800 Bloomberg, Audio Studios, podcasts, radio news. 0:00:11.920 --> 0:00:15.680 This is Gao Punchin. He's twenty two, just graduated from 0:00:15.720 --> 0:00:20.119 college and lives in China's southern city of Shenzen. Gao 0:00:20.200 --> 0:00:23.720 wants to become a full time social media influencer. He 0:00:23.800 --> 0:00:26.760 posts video blogs of his life and does freelance work 0:00:26.840 --> 0:00:30.000 on the side too. He makes about one thousand dollars 0:00:30.040 --> 0:00:33.560 a month, a moderate income in Shenzen, but Gao still 0:00:33.600 --> 0:00:36.839 appreciates the finer things in life. Here he is on 0:00:36.920 --> 0:00:40.760 Shaohumshu China's Instagram saying that he's treating himself to a 0:00:40.840 --> 0:00:44.360 luxurious first class flight to South Korea for quick. 0:00:44.159 --> 0:00:46.800 Getaway should she set. 0:00:48.840 --> 0:00:52.760 But to afford the occasional splurge, Gao decided to scrap 0:00:53.080 --> 0:00:57.440 one major expense from his budget, his pension payments. It's 0:00:57.480 --> 0:01:00.200 about two hundred dollars, and he told Bloomberg that that's 0:01:00.200 --> 0:01:03.800 a fifth of his monthly income, money that Gao says 0:01:03.840 --> 0:01:05.760 he'd rather spend enjoying himself. 0:01:06.840 --> 0:01:13.600 What's all the cases union? Yoo? Uh now someone some 0:01:13.600 --> 0:01:17.160 one question one not true? Your Michael Paul Bahoma. 0:01:17.600 --> 0:01:20.240 Gao says most of his friends don't pay into the 0:01:20.240 --> 0:01:23.480 pension fund either if their line of work like freelancing, 0:01:23.640 --> 0:01:27.720 makes the payments voluntary. And across China there are millions 0:01:27.760 --> 0:01:30.039 like Gao who are boycotting the pension plan. 0:01:30.640 --> 0:01:33.880 Based on Bloomberg's calculation of data from Chinese think tank, 0:01:34.440 --> 0:01:38.320 tens of millions of China's young workers have suspended contribution 0:01:38.520 --> 0:01:41.880 to Chinese pension plans, and that was additional pressure on 0:01:41.920 --> 0:01:43.560 a system that's already wobbly. 0:01:44.040 --> 0:01:47.000 Chenway Jong is a Bloomberg editor based in Hong Kong. 0:01:47.319 --> 0:01:50.240 China's basic pension fund is at the risk of drying 0:01:50.320 --> 0:01:53.720 up by twenty thirty five, and the government is not 0:01:53.840 --> 0:01:57.880 able to provide the most basic social security. That risk 0:01:58.080 --> 0:02:01.440 undermining the publicist faith in the Common Party and its 0:02:01.480 --> 0:02:04.120 social contract with the people, and it could be a 0:02:04.200 --> 0:02:10.240 taking time bomb, posing us throughout to China's social stability. 0:02:12.520 --> 0:02:15.720 Welcome to The Big Take Asia from Bloomberg News. I'm Wanha. 0:02:16.960 --> 0:02:19.400 Every week we take you inside some of the world's 0:02:19.440 --> 0:02:23.600 biggest and most powerful economies and the markets, tycoons and 0:02:23.720 --> 0:02:28.760 businesses that drive this ever shifting region. Today on the show, 0:02:29.040 --> 0:02:32.480 why is China's pension fund and danger of drying up? 0:02:33.280 --> 0:02:36.400 What are the risks to the country's already struggling economy 0:02:36.919 --> 0:02:46.040 and the credibility of the Communist Party. Like most things 0:02:46.080 --> 0:02:49.920 in China, the size of the Chinese pension system is daggering. 0:02:50.440 --> 0:02:54.160 The country has the world's largest social security system, and 0:02:54.160 --> 0:02:57.440 Bloomberg's Chenwai Jung says the easiest way to think about 0:02:57.440 --> 0:03:00.600 the different systems set up for retirement in China is 0:03:00.639 --> 0:03:02.519 to break it down to three pillars. 0:03:03.480 --> 0:03:06.760 The first one is the government funded basic pension system. 0:03:06.919 --> 0:03:08.800 This is what we talk about when we refer to 0:03:08.800 --> 0:03:12.480 the pension system. It currently covers one point one billion people, 0:03:12.720 --> 0:03:15.560 and that's around eighty percent of the entire population. 0:03:16.360 --> 0:03:19.000 If you work in China with a formal job, you're 0:03:19.040 --> 0:03:22.280 required by law to contribute to this basic pension plan. 0:03:22.600 --> 0:03:25.240 So if I work for a company insite mainland China, 0:03:25.680 --> 0:03:29.080 every month, I'm supposed to pay about eight percent of 0:03:29.120 --> 0:03:32.520 my income to the pension system, and in the same token, 0:03:32.960 --> 0:03:36.440 my employer is supposed to pay sixteen percent of my 0:03:36.560 --> 0:03:40.400 income to the pension fund. This is a largely mandatory plan, 0:03:40.560 --> 0:03:44.240 but it also covers freelancers and gig workers like Gao, 0:03:44.320 --> 0:03:47.080 who don't have a formal job and can opt out 0:03:47.200 --> 0:03:51.880 if they truce, So their contribution is entirely voluntary, and 0:03:52.000 --> 0:03:55.240 all that money goes to the basic pension system and 0:03:55.400 --> 0:03:57.920 is going to pay for the present day retirees. 0:03:58.360 --> 0:04:01.160 Okay, so I got that. What's the second pillar. 0:04:01.480 --> 0:04:04.960 The second pillar is called the voluntary cooperate pension and 0:04:05.000 --> 0:04:07.200 it's similar to the four to one K plan in 0:04:07.240 --> 0:04:11.280 the US. It only covers thirty one million business workers 0:04:11.800 --> 0:04:14.840 and with a little over three trillion women in assets. 0:04:15.440 --> 0:04:18.160 And what's the difference between the two pension systems. 0:04:18.560 --> 0:04:23.039 So the main difference is the volunteer croper pension is 0:04:23.080 --> 0:04:26.680 set up by companies for their employees and by the 0:04:26.720 --> 0:04:29.840 time the employees retire, they will mostly be able to 0:04:29.880 --> 0:04:33.400 destroy every single penny that the company put in there 0:04:33.440 --> 0:04:37.000 for them. But the basic pension system, you don't really 0:04:37.040 --> 0:04:39.599 know how much money you will be withdrawing by the 0:04:39.680 --> 0:04:43.080 time you retire, and there's no guarantee you will be 0:04:43.120 --> 0:04:46.560 getting every penny out of everything that you put in. 0:04:48.080 --> 0:04:51.400 Workers in China used to enjoy social welfare that covered 0:04:51.400 --> 0:04:55.400 them from cradle to grave, guaranteed by state owned enterprises, 0:04:55.960 --> 0:04:59.560 but that policy was upended after China's economy opened up 0:04:59.560 --> 0:05:02.960 in the seven and for decades, most people rely on 0:05:03.040 --> 0:05:06.159 the Basic pension Plan, the first and the largest pillar, 0:05:06.640 --> 0:05:10.440 while only a small number of companies offer voluntary corporate 0:05:10.480 --> 0:05:11.520 pension plans. 0:05:11.920 --> 0:05:14.200 I think in the past time when times are good, 0:05:14.240 --> 0:05:19.520 when China wasn't in such a dire demographic situation, there's 0:05:20.000 --> 0:05:23.400 hope that government would be able to give you the 0:05:23.480 --> 0:05:25.680 money back. And on top of that, for a really 0:05:25.720 --> 0:05:29.600 long time, the basic pension system is people's only option. 0:05:30.200 --> 0:05:32.400 And chen way, what about that last pillar of the 0:05:32.400 --> 0:05:33.920 pension system. What's that about? 0:05:34.400 --> 0:05:38.640 So the third pillar is still very young. It's called 0:05:38.680 --> 0:05:42.680 the volunteer Individual Pension System. The government only started testing 0:05:42.720 --> 0:05:46.400 it in twenty twenty two, and it's similar to the 0:05:46.440 --> 0:05:50.200 individual retirement accounts in the US. So you can contribute 0:05:50.279 --> 0:05:53.520 to text sheltered saving fund and then can pick whatever 0:05:53.640 --> 0:05:57.520 investment that you want to put the money in. So far, 0:05:57.720 --> 0:06:01.760 only a little over sixty million people signed up, but 0:06:02.320 --> 0:06:05.359 less than a third people have actually putting any deposit. 0:06:05.720 --> 0:06:09.720 Okay, so we've got the mandatory government pension plan, voluntary 0:06:09.760 --> 0:06:14.560 corporate pension plan and voluntary individual pension plan. How are 0:06:14.600 --> 0:06:16.880 these three pensions doing right now? 0:06:17.600 --> 0:06:20.520 So all of the three pillars of China's pension fund 0:06:20.600 --> 0:06:24.960 are underfunded. According to the Chinese Academy of Social Sciences, 0:06:25.520 --> 0:06:28.840 the savings in the biggest pillar the Chinese basic pension 0:06:28.839 --> 0:06:32.640 system will peak at seven trillion in twenty twenty seven 0:06:32.720 --> 0:06:36.440 before shrinking sharply, and by twenty thirty five, the basic 0:06:36.480 --> 0:06:39.480 pension system is at the risk of drawing up even 0:06:39.560 --> 0:06:40.800 if the government steps in. 0:06:42.320 --> 0:06:44.919 One of the main reasons all of these pension plans 0:06:45.000 --> 0:06:50.040 are underfunded is because of China's falling population. For decades, 0:06:50.200 --> 0:06:53.720 China imposed a strict one child policy that only allowed 0:06:53.760 --> 0:06:55.320 each couple to have one kid. 0:06:55.720 --> 0:07:01.800 Now, after decades of successful family plan policy, China has 0:07:01.839 --> 0:07:06.000 created this unique four to one family structure, which means 0:07:06.040 --> 0:07:11.120 that four grandparents will be taking care of one precious child. 0:07:11.800 --> 0:07:14.640 But if you reverse the structure, we're looking at an 0:07:14.880 --> 0:07:18.120 entire generation of people having to take care of two 0:07:18.200 --> 0:07:20.480 parents and four grandparents. 0:07:21.160 --> 0:07:24.040 That's a lot of pressure on the younger generation, who 0:07:24.080 --> 0:07:27.560 now make up the workforce. They're expected to help provide 0:07:27.600 --> 0:07:31.120 for the growing number of retirees. But some people like 0:07:31.200 --> 0:07:34.840 Galpun Chung, are opting out of the pension system altogether. 0:07:35.160 --> 0:07:38.560 And on top of that, many of us are delaying marriage, 0:07:38.760 --> 0:07:42.240 delaying having children, and a lot of people also say 0:07:42.280 --> 0:07:44.920 they don't want to have children at all, and that's 0:07:45.040 --> 0:07:49.240 going to be a problem for the future demographics. We're 0:07:49.240 --> 0:07:53.440 looking at a rapidly shrinking population, which means not enough 0:07:53.560 --> 0:07:56.520 labor will be entering the job market and putting money 0:07:56.520 --> 0:08:00.200 into the pension funding. 0:08:00.240 --> 0:08:03.520 To government data, more than twenty million workers will retire 0:08:03.680 --> 0:08:06.840 each year over the next decade in China, and by 0:08:06.880 --> 0:08:10.520 twenty thirty five, the number of Chinese citizens over sixty 0:08:10.800 --> 0:08:14.520 is forecast a top four hundred million. That's more than 0:08:14.520 --> 0:08:17.360 the population of the US and Canada combined. 0:08:17.840 --> 0:08:21.760 This is simple mass. On one hand, more old people 0:08:21.880 --> 0:08:24.560 will be retiring, and on the other hand, there will 0:08:24.600 --> 0:08:28.200 be less people being born. In China, the population has 0:08:28.240 --> 0:08:32.080 been shrinking since twenty twenty two, and the United Nations 0:08:32.120 --> 0:08:35.040 projects that China's population could shrink to half of its 0:08:35.040 --> 0:08:37.360 current size by the end of the century. 0:08:38.080 --> 0:08:42.120 Now, Chinwai. Problems like aging populations are faced by many 0:08:42.160 --> 0:08:45.960 developed nations in Europe and the Americas. Even the US 0:08:46.000 --> 0:08:49.920 Social Security Trust Fund faces insolvency by twenty thirty five. 0:08:50.640 --> 0:08:53.640 So how is China's pension fund situation any different? 0:08:53.960 --> 0:08:57.280 So On one hand, China has way more old people 0:08:57.480 --> 0:09:01.120 than the US and Canada. The ratio owe to working 0:09:01.160 --> 0:09:04.680 age people in China is forecast to soar. And on 0:09:04.720 --> 0:09:08.320 the other hand, China's pension fund is mostly dependent on 0:09:08.679 --> 0:09:12.880 the basic pension fund, whereas US and Canada, their pension 0:09:12.920 --> 0:09:16.920 system is more diverse and more people are enrolled in 0:09:17.120 --> 0:09:19.440 the second pillar and third pillar. 0:09:20.360 --> 0:09:23.280 After the break, What the Chinese government is doing to 0:09:23.360 --> 0:09:27.920 prevent the world's largest social security network from running dry 0:09:27.960 --> 0:09:40.840 and what could happen if those efforts fail. China's rapidly 0:09:40.880 --> 0:09:43.880 aging population is putting a lot of pressure on the 0:09:43.920 --> 0:09:47.600 country's policy makers. The government is throwing everything at the 0:09:47.600 --> 0:09:51.280 wall to prevent the pension fund from running out. In 0:09:51.320 --> 0:09:55.240 twenty sixteen, Beijing reversed the one child policy after more 0:09:55.240 --> 0:09:58.320 than thirty five years, and it's been stepping up efforts 0:09:58.320 --> 0:10:01.800 to boost the birth rate every since, but that's done 0:10:01.880 --> 0:10:05.280 little to slow down the problem. The population remains in 0:10:05.360 --> 0:10:09.240 decline and most parents can't afford to have multiple children, 0:10:09.800 --> 0:10:10.360 and last. 0:10:10.160 --> 0:10:14.040 September, Beijing took a major step last September to shore 0:10:14.160 --> 0:10:17.480 up the system by delaying retirement age for up to 0:10:17.600 --> 0:10:20.800 five years, and the shift is the first of its 0:10:20.880 --> 0:10:25.080 kind in nearly five decades. The policy whenning to effect 0:10:25.160 --> 0:10:27.160 on January the first, twenty twenty five. 0:10:27.840 --> 0:10:30.440 The new policy up to the retirement age for men 0:10:30.520 --> 0:10:33.880 to sixty three from sixty and for women to fifty 0:10:33.880 --> 0:10:37.760 five years old from fifty. The policy shift has triggered 0:10:37.800 --> 0:10:41.520 an outpouring of anger on social media, with many complaining 0:10:41.559 --> 0:10:45.640 about the sluggish job market. Goo the blogger we heard earlier, 0:10:46.120 --> 0:10:49.520 also says the pension plan isn't sustainable. 0:10:49.679 --> 0:10:55.280 So looking at postponing retirement age, Gao is very upset 0:10:55.520 --> 0:10:58.560 and he's asking questions like why do I have to 0:10:58.640 --> 0:11:02.840 work for so much longer than my parents' generation? And 0:11:03.000 --> 0:11:06.200 how much money do I put into the system? The 0:11:06.200 --> 0:11:09.280 big problem for Gao is how much money is he 0:11:09.400 --> 0:11:12.880 actually going to get by the time he retired. And 0:11:13.280 --> 0:11:16.400 Gao is not the only one who thinks this way. 0:11:16.800 --> 0:11:20.880 According to a Chinese Academy of Social Sciences report, about 0:11:20.880 --> 0:11:24.320 a fifth of urban employees did not contribute to the 0:11:24.360 --> 0:11:25.720 system in recent years. 0:11:26.040 --> 0:11:30.319 Those were mostly migrant workers. Thirty eight million people stopped 0:11:30.360 --> 0:11:34.760 payment in twenty thirteen alone. That also includes employees of 0:11:34.800 --> 0:11:40.160 businesses that suspended contributions due to financial difficulties, Chinwai. What's 0:11:40.200 --> 0:11:43.200 at stake here to China's economy and its government. If 0:11:43.240 --> 0:11:46.599 the pension fund does run dry. 0:11:45.920 --> 0:11:48.480 If the government is not able to provide even the 0:11:48.520 --> 0:11:52.160 most basic social security, it's going to undermine the public's 0:11:52.160 --> 0:11:55.680 faith in the system, and it can create more opportunities 0:11:55.720 --> 0:12:00.560 for social unrest. And what's worse is that young people 0:12:00.600 --> 0:12:03.360 are going to lose hope of the government and they're 0:12:03.360 --> 0:12:06.280 not going to be motivated to work hard and fight 0:12:06.400 --> 0:12:08.480 for the economic growth of the country. 0:12:08.920 --> 0:12:12.080 Mack and shinzen Gow says he doesn't see the point 0:12:12.240 --> 0:12:17.000 of paying into the pension fund with so much uncertainty. 0:12:17.120 --> 0:12:20.360 My parents could have retired last year or the year before, 0:12:20.920 --> 0:12:23.760 but now because of the policy change, they have to 0:12:23.800 --> 0:12:27.680 work longer and pay more into the pension fus and 0:12:27.800 --> 0:12:30.520 we don't even know if they can get that money back. 0:12:31.360 --> 0:12:34.120 To put it bluntly that if they can live long 0:12:34.240 --> 0:12:40.520 enough to see that they even come. China has one 0:12:40.559 --> 0:12:45.160 point three billion people. If everyone retires at a later age, 0:12:45.280 --> 0:12:49.840 the contribution altogether is huge. I understand that the country 0:12:50.040 --> 0:12:52.960 needs this to help the economy, and this might be 0:12:53.000 --> 0:12:56.120 good policy for the nation, but it's not a good 0:12:56.200 --> 0:12:58.120 policy for regular people like us. 0:13:09.520 --> 0:13:12.400 This is The Big Take Asia from Bloomberg News. I'm 0:13:12.400 --> 0:13:16.040 one ha. This episode was produced by Young Young, Naomi 0:13:16.120 --> 0:13:19.120 Mum and Jessica Beck. It was mixed by Amr Sultan 0:13:19.240 --> 0:13:22.000 and sound designed by Jessica and fact checked by Young. 0:13:22.440 --> 0:13:26.000 It was edited by Aaron Edwards, Luluchen and Tracy Samuelson. 0:13:26.280 --> 0:13:29.600 There was additional reporting by Ding Ming, John and Charlotte Yang. 0:13:30.160 --> 0:13:31.679 We also want to give a shout out to the 0:13:31.720 --> 0:13:35.280 Bloomberg Originals team and David Englaise name was Shaven is 0:13:35.280 --> 0:13:38.880 our senior producer, Elizabeth Ponso is our senior editor, Nicole 0:13:38.920 --> 0:13:42.400 Beemster Bower is our executive producer, and Sage Bauman is 0:13:42.480 --> 0:13:45.880 Bloomberg's head of Podcasts. Please follow and review The Big 0:13:45.920 --> 0:13:49.280 Take Asia wherever you listen to podcasts. It really helps 0:13:49.320 --> 0:13:52.720 new listeners find the show. See you next time.