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China in crisis as unfunded liability nears e204bn

CHINA- A new report by ratings agency Standard and Poor’s shows flaws in China’s financial markets and an ageing population are adding pressure to the state pension scheme which already has an unfunded liability approaching $200bn (e204bn).

According to the report, more than 100m Chinese are already eligible for pensions and World Bank estimates suggest the number aged over 65 will hit 300m by 2050, a scenario that would take the dependency ratio to just 3:1.

An estimated $25bn paid by Chinese workers into personal retirement accounts to be invested on their behalf, has been used instead to pay current pensioners.

Last June the Chinese government started selling off state-owned companies to fund a new pension scheme but the rush of shares on the exchanges resulted in investors selling their own stock.

The government is now hurrying to build a centralised system that would collect pension contributions from individuals, state-owned enterprises and non-state companies and make payments directly to workers.

The introduction of a national pension scheme planned for 2001 was delayed after a pilot scheme hit difficulties and Standard and Poor’s says reform is now urgent.

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