Separating government and enterprises in the reform of social
security system is a wise move, says a commentary in 21st
Century Business Herald. An excerpt follows:
Scandals concerning the misappropriation of social security
funds have popped up in several places recently. At the same time,
the Ministry of Labour and Social Security announced the expansion
of the pilot programme solidifying individual accounts from two
provinces to eight.
On the one hand, there are many problems with the management of
social security funds. On the other hand, the reform of fund
accumulation and distribution has met many difficulties. China
started accumulating pension funds in 1993. However, those who had
retired or started working before then had not accumulated pension
funds previously. Their contribution has been directly turned into
State assets. Therefore, the State owes them historical debts,
which were estimated to be about 2 trillion yuan (US$253 billion)
in 2000.
This has led to a high insurance premium rate as well as empty
individual accounts. The payment shortfalls in the social security
system have increased year by year. The reform of the social
security system has remained a quandary.
China has stressed safety over appreciation in the management of
social security funds. The State Council ruled in 1991 that the
pension fund should only be deposited in banks or used to purchase
national bonds. However, the system became more flexible two years
later, when the State Council allowed a certain portion of the
funds to be put out through State banks and investment
companies.
Soon the situation got out of control and many problems emerged.
The government had to put an end to the disorderly investment trend
and banned all kinds of investment of pension funds soon after.
The construction of China's pension system cannot be achieved
overnight. Past experiences show that unstable or immature policies
can also produce pension fund misappropriation. Also, local
governments' intervention in pension fund management will lead to
increasing risks and corruption.
For these reasons, it is a wise step to separate government
administration and enterprise management in the process of
reform.
(China Daily December 1, 2006)