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Report: China's pension shortfall poses large fiscal risk

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Report: China's pension shortfall poses large fiscal risk

China's pension shortfall poses a big challenge for policymakers aiming to keep rising debt from derailing the economy, Bloomberg News reported Feb. 6.

Pension contributions by the labor force are no longer sufficient to cover retiree benefits, meaning the government has had to cover the difference since at least 2014, the report said. Such expenses rose 11.6% to 2.58 trillion yuan in 2016, with the government covering a 429.1 billion-yuan shortfall, Bloomberg said, citing Finance Ministry data.

The shortfall will reach 600 billion yuan in 2018 and 890 billion yuan in 2020 if the gap is not addressed, said Wang Dehua, a researcher at the National Academy of Economic Strategy in Beijing.

Further, China's population is aging quickly, with about a quarter of the population at 60 years or older by 2030, according to the State Council, up from 13.3% in the 2010 census. Lifting the one-child rule has not raised birth rates as high living costs deter couples from having more children. Births fell to 17.2 million in 2017 from 18.5 million in 2016.

"China's biggest fiscal risk is pension risk," said Wang, whose institute is under government think tank Chinese Academy of Social Sciences. "There are big problems in the pension system if it can only keep operating with large fiscal subsidies."

While government revenue rose 7.4% in 2017, that is unlikely to increase amid slower economic growth, limiting Beijing's ability to cover the shortfall with larger subsidies. This may force policymakers to issue debt to bridge the gap, Bloomberg noted.

Meanwhile, the Chinese government in November 2017 asked some state-owned enterprises and financial institutions to transfer 10% of their state-owned equity to social security funds to help cover the shortfall, but details have yet to be released.

As of Feb. 5, US$1 was equivalent to 6.29 Chinese yuan.