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Redistributive Nature of the Chinese Social Benefit System: Progressive or Regressive?*

  • Qin Gao

Abstract

Using nationally representative household survey data and a revealing statistical method, this article investigates the redistributive nature of the Chinese social benefit system within urban and rural areas respectively and in the national context. Like many other dimensions of Chinese society, the redistributive nature of social benefits appeared to be a two-sided story: urban social benefits were much more generous and predominantly progressive, while rural social benefits were minimal and consistently regressive. The national social benefit system was redistributed regressively, but the extent of its regressivity decreased over time, suggesting an equity-oriented policy direction echoed by several recent government initiatives to support rural residents, migrants and the urban poor. The outcomes of these initiatives, especially their redistributive effects, require close observation and await evaluation.

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I wish to thank Paul DuongTran, Irwin Garfinkel, Andrew J. Nathan, Carl Riskin, Timothy Smeeding, Dorothy Solinger and Fuhua Zhai for helpful comments and suggestions on this or earlier versions of the article. Part of this research was generously supported by the V. K. Wellington Koo Fellowship awarded through the Columbia University Weatherhead East Asian Institute, the Columbia University Public Policy Consortium Fellowship and the Chiang Ching-Kuo Foundation for International Scholarly Exchange. I am also grateful to the Asian Development Bank, the Ford Foundation and the Swedish International Development Agency who funded the surveys which provide data for this research.

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1 A large body of literature has documented these trends and made similar arguments. For books, see, for example, Chan, Cecilia L. W. and Chow, Nelson W. S., More Welfare after Economic Reform? Welfare Development in the People's Republic of China (Hong Kong: Hong Kong University Press, 1992); Chen, Sheying, Social Policy of the Economic State and Community Care in Chinese Culture (Aldershot: Avebury, 1996); Finer, Catherine Jones (ed.), Social Policy Reform in China: Views from Home and Abroad (Aldershot: Ashgate, 2003); Leung, Joe C. B. and Nann, Richard C., Authority and Benevolence: Social Welfare in China (Hong Kong: The Chinese University Press, 1995); Wong, Linda, Marginalization and Social Welfare in China (London & New York: Routledge/LSE, 1998); Wong, Linda and MacPherson, Stewart (eds), Social Change and Social Policy in Contemporary China (Aldershot: Avebury, 1995). For journal articles or book chapters, see, for example, Cook, Sarah, “From rice bowl to safety net: insecurity and social protection during China's transition,” Development Policy Review, Vol. 20, No. 5 (2002), pp. 615–35; Croll, Elisabeth J., “Social welfare reform: trends and tensions,” The China Quarterly, No. 159 (1999), pp. 684–99; Davis, Deborah, “Chinese social welfare: policies and outcomes,” The China Quarterly, No. 119 (1989), pp. 577–97; Gao, Qin, “The social benefit system in urban China: reforms and trends from 1988 to 2002,” Journal of East Asian Studies, Vol. 6 (2006), pp. 3167; Guan, Xinping, “China's social policy: reform and development in the context of marketization and globalization,” Social Policy & Administration, Vol. 34, No. 1 (2000), pp. 115–30; Hussain, Athar, “Social security in transition,” in Shue, Vivienne and Wong, Christine (eds), Paying for Progress in China: Public Finance, Human Welfare and Changing Patterns of Inequality (London and New York: Routledge, 2007); Khan, Azizur Rahman and Riskin, Carl, “Income and inequality in China: composition, distribution and growth of household income, 1988 to 1995,” The China Quarterly, No. 154 (1998), pp. 221–53; Khan, Azizur Rahman and Riskin, Carl, “China's household income and its distribution, 1995 and 2002,” The China Quarterly, No. 182 (2005), pp. 356–84; Leung, Joe C., “Social security reforms in China: issues and prospects,” International Journal of Social Welfare, Vol. 12 (2003), pp. 7385; Li, Xing, “The transformation of ideology from Mao to Deng: impact on China's social welfare outcome,” International Journal of Social Welfare, Vol. 8 (1999), pp. 8696; Saunders, Peter and Shang, Xiaoyuan, “Social security reform in China's transition to a market economy,” Social Policy & Administration, Vol. 35, No. 3 (2001), pp. 274–89; Zhu, Yukun, “Recent developments in China's social security reforms,” International Social Security Review, Vol. 55, No. 4 (2002), pp. 3954.

2 Gao, Qin and Riskin, Carl, “Market versus social benefits: explaining China's changing income inequality,” in Davis, Deborah and Wang, Feng (eds), Creating Wealth and Poverty in Post-Socialist China (Palo Alto, CA: Stanford University Press, 2008).

3 Khan and Riskin, “Income and inequality in China”; Khan and Riskin, “China's household income and its distribution.”

4 Recipients of living subsidy for the laid-off and dibao benefits overlap to a great extent. The Ministry of Civil Affairs reported that, in 2002, over half of dibao recipients were unemployed (Hong, Dayong, “Recent developments in dibao for urban residents,” in Poverty and Dibao in Urban China (Beijing: The Social Policy Research Center, Chinese Academy of Social Sciences, 2005). A study of five major cities in 2003 also found that 53% of all dibao recipients were unemployed (Tang, Jun, “The situation and prospects of dibao,” in Ru, X., Lu, X. and Li, P. (eds), Analysis and Prediction of China's Social Situation (Beijing: Social Sciences Documentation Press, 2004).

5 Yang Du and Albert Park, “The effects of social assistance on poverty reduction: evidence from household surveys in urban China,” The International Conference on Policy Perspectives on Growth, Economic Structures and Poverty Reduction, Beijing, China, June 2007; Gao, Qin, Garfinkel, Irwin and Zhai, Fuhua, “Anti-poverty effectiveness of the minimum living standard assistance policy in urban China,” Review of Income and Wealth, Vol. 55, No. 1 (2009), pp. 630–55; Björn Gustafsson and Quheng Deng, “Social assistance receipt and its importance for combating poverty in urban China,” IZA Discussion Paper No. 2758 (2007); Athar Hussain, “Urban poverty in China: measurements, patterns and policies” (International Labour Office, Geneva: InFocus Programme on Socio-Economic Security Research Paper, 2003); Solinger, Dorothy, “Labour market reform and the plight of the laid-off proletariat,” The China Quarterly, No. 170, (2002), pp. 304–26; Solinger, Dorothy, “The urban dibao: guarantee for minimum livelihood or for minimal turmoil?” in Wu, Fulong (ed.), Marginalization in China: Comparative Perspectives (Basingstoke: Palgrave Macmillan, 2010).

6 Gao and Riskin, “Market versus social benefits.”

7 Achim Fock and Christine Wong, “China: improving rural public finance for the harmonious society,” The World Bank, Report No. 41579-CN (2007); Achim Fock and Christine Wong, “China: public services for building the new socialist countryside,” The World Bank, Report No. 40221-CN (2007); Achim Fock and Christine Wong, “Financing rural development for a harmonious society in China: recent reforms in public finance and their prospects,” The World Bank, Report No. WPS4693 (2008).

8 Khan and Riskin, “China's household income and its distribution.”

9 Gao and Riskin, “Market versus social benefits.”

10 As specified in ibid., the concentration ratio is a measure of the inequality of the distribution of a particular income source. It is measured in the same way as the Gini coefficient, except that it considers the distribution of an income source over all income recipients rather than only the recipients of one particular source.

11 For more details about CHIP's design, see Khan and Riskin, “Income and inequality in China”; Khan, and Riskin, , “China's household income and its distribution”; Riskin, Carl, Zhao, Renwei and Li, Shi (eds), China's Retreat from Equality: Income Distribution and Economic Transition (Armonk, NY: M. E. Sharpe, 2001). See Bramall, Chris, “The quality of China's household income surveys,” The China Quarterly, No. 167 (2001), pp. 689705, for a detailed discussion of issues concerning household income surveys in China, including CHIP. As pointed out by Khan and Riskin in “China's household income and its distribution”: “Some problems, such as under-representation of very poor, illiterate households and of very rich entrepreneurial ones, are endemic to such surveys, especially in developing countries. We share the belief that property income is understated by CHIP surveys” (n. 3, p. 357).

12 Khan and Riskin, “China's household income and its distribution,” pp. 356–57.

13 The CHIP research team followed carefully designed procedures in sample selection to ensure national representativeness. These procedures and related considerations were documented in Eichen, Marc and Zhang, Ming, “Annex: the 1988 household sample survey – data description and availability,” in Griffin, Keith and Zhao, Renwei (eds), The Distribution of Income in China. (New York: St. Martin's Press, 1993).

14 For more details about the estimation methods of various social benefits and market income sources, see Gao, Qin, “Social benefits in urban China: determinants and impacts on income inequality in 1988 and 2002,” in Wan, Guanghua (ed.), Understanding Inequality and Poverty in China: Methods and Applications (Basingstoke: Palgrave Macmillan, 2008).

15 According to the official CPI, in urban areas, 100 yuan in 2002 was equivalent to 39.7 yuan in 1988 and 90.4 yuan in 1995, whereas in rural areas, 100 yuan in 2002 was equivalent to 42.0 yuan in 1988 and 92.4 yuan in 1995 (National Bureau of Statistics, China Statistical Abstract 2004 (Beijing: China Statistics Press, 2004, p. 88).

16 This follows the approach used in Khan and Riskin, “China's household income and its distribution.” Official data show that the share of the rural population decreased from 74% in 1988 to 71% in 1995 and 61% in 2002, reflecting rapid urbanization during this period. National Bureau of Statistics, China Statistical Yearbook 1999 (Beijing: China Statistics Press, 1999); Statistics, National Bureau of, China Statistical Yearbook 2004 (Beijing: China Statistics Press, 2004).

17 See discussions and illustrations in Garfinkel, Irwin, Rainwater, Lee and Smeeding, Timothy M., “A re-examination of welfare states and inequality in rich nations: how in-kind transfers and indirect taxes change the story,” Journal of Policy Analysis and Management, Vol. 25, No. 4 (2006), pp. 897919.

18 See discussions in Peter J. Lambert, The Distribution and Redistribution of Income (Manchester & New York: Manchester University Press, 2001).

19 Khan and Riskin, “China's household income and its distribution.”

20 These findings are consistent with existing evidence using the same data source but different income inequality measures. See Gao, “Social benefits in urban China.”

21 Gao and Riskin, “Market versus social benefits.”

23 Gao, “Social benefits in urban China.”

24 Gao and Riskin, “Market versus social benefits.”

26 See empirical evidence and discussion in Du and Park, “The effects of social assistance on poverty reduction”; Gao, Garfinkel and Zhai, “Anti-poverty effectiveness of the minimum living standard assistance policy”; Gustafsson and Deng, “Social assistance receipt and its importance for combating poverty”; Hussain, “Urban poverty in China”; Solinger, “The urban dibao.”

27 However, recent ethnographic work suggested that dibao may not play a larger progressive role in urban China, but rather remain covering only a minority of the “truly indigent urban population.” See Solinger, “The urban dibao.”

28 Gao and Riskin, “Market versus social benefits.”

29 Ibid.; Gao, “The social benefit system in urban China.”

30 Gao and Riskin, “Market versus social benefits.”

31 See analysis and discussions in Khan and Riskin, “China's household income and its distribution.”

32 See n. 16.

33 See empirical evidence and discussion on the urban–rural income disparity in Khan, Azizur Rahman and Riskin, Carl, Inequality and Poverty in China in the Age of Globalization (New York: Oxford University Press, 2001); Khan and Riskin, “China's household income and its distribution”; Khan and Riskin, “Income and inequality in China”; Ximing Wu and Jeffrey M. Perloff, “China's income distribution over time: reasons for rising inequality,” University of California, Berkeley, Department of Agricultural & Resource Economics (CUDARE) Working Paper 977 (2004), available at http://repositories.cdlib.org/are_ucb/977; Shi Li, “New trends in income distribution in China and related policy changes” (Beijing: China Academy of Social Science, Institute of Economics, 2003).

34 Note that there are huge disparities in access to and the level of these benefits according to employment sector (employer's ownership type) and location (financial capacity of the city), despite their nearly universal coverage in urban China. See Frazier, Mark W., “Pensions, public opinion, and the graying of china,” Asia Policy, No. 1 (2006), pp. 4368; Lin, Ka and Kangas, Olli, “Social policymaking and its institutional basis: transition of the Chinese social security system,” International Social Security Review, Vol. 59, No. 2 (2006), pp. 6176; Nyland, Chris, Smyth, Russell and Zhu, Cherrie Jiuhua, “What determines the extent to which employers will comply with their social security obligations? Evidence from Chinese firm-level data,” Social Policy & Administration, Vol. 40, No. 2 (2006), pp. 196214.

35 Gao, “The social benefit system in urban China”; Gao, Garfinkel and Zhai, “Anti-poverty effectiveness of the minimum living standard assistance policy”; Hong, “Recent developments in dibao for urban residents”; Leung, “Social security reforms in China”; Information Office of the State Council (IOSC), White Paper on China's Social Security and its Policy (Beijing: IOSC, 2004); Rösner, Hans J., “China's health insurance system in transformation: preliminary assessment, and policy suggestions,” International Social Security Review, Vol. 57, No. 3 (2004), pp. 6590; Zhu, “Recent developments in China's social security reforms.”

36 Fock and Wong, “Improving rural public finance for the harmonious society”; Fock and Wong, “Public services for building the new socialist countryside”; Fock and Wong, “Financing rural development for a harmonious society.” Another important initiative has been the provision of free compulsory education to rural children, which includes offering free textbooks, charging no tuition or other fees, and subsidizing the boarding school expenses of students from poor families. The financing responsibility, which was once shared by the collective and peasants' out-of-pocket payments, has entirely shifted to the government. This was experimented with in various provinces during 2006–07 and implemented nationwide by end of 2007. Speech by the Minister of Education, Zhou Ji, on 23 October 2008 entitled “Dali banhao nongcun jiaoyu shiye” (“Making great efforts to succeed in rural education”), available at the Ministry of Education website at http://www.moe.edu.cn/edoas/website18/04/info1224742420666304.htm (accessed 8 December 2008).

37 For example, in 2002, tax payments made up 6.8% of total household pre-transfer income of the poorest income decile in rural China, but only 1.4% for the richest income decile. Gao and Riskin, “Market versus social benefits,” p. 31.

38 Mao Zhengzhong, “Gonggu, guifan, wanshan” (“Consolidate, regulate, improve”), Renmin ribao (People's Daily), 24 June 2008, available at http://paper.people.com.cn/rmrb/html/2008-06/24/content_44968.htm (accessed 8 December 2008).

39 Enrolment is lower among poor households and higher among households with chronically sick members. Adam Wagstaff, Magnus Lindelow, Gao Jun, Xu Ling and Qian Juncheng, “Extending health insurance to the rural population: an impact evaluation of China's new cooperative medical scheme,” The World Bank Policy Research Working Paper 4150 (2007).

40 Gu Xin, “Xinxing nongcun hezuo yiliao mianlin si da tiaozhan” (“Four challenges faced by the new rural co-operative medical system”), Guangzhou ribao (Guangzhou Daily), 26 June 2006, available at http://www.chinapharm.com.cn/html/hyyw/1151282858046.html (accessed 8 December 2008).

41 “Jianli nongcun dibaozhi kaishi pobing” (“Breaking the ice in establishing rural dibao”), Nongmin ribao (Farmers' Daily), 6 February 2007, available at http://xinnongcun.agri.gov.cn/counter.asp?id=9972&IClass=0003 (accessed 8 December 2008).

42 Department of Planning and Finance, Ministry of Civil Affairs, available at http://cws.mca.gov.cn/article/tjsj/dbsj/ (accessed 8 December 2008).

43 Wong, Daniel Fu Keung, Li, Chang Ying and Song, He Xue, “Rural migrant workers in urban China: living a marginalised life,” International Journal of Social Welfare, No. 16 (2007), pp. 3240, at p.36. Also see Fleisher, Belton M. and Yang, Dennis T., “Labor law and regulations in China,” China Economic Review, No. 14 (2003), pp. 426–33.

44 Fock and Wong, “Improving rural public finance for the harmonious society”; Fock and Wong, “Public services for building the new socialist countryside”; Fock and Wong, “Financing rural development for a harmonious society.”

45 Solinger gives many examples from her fieldwork, such as prohibiting recipients from sending their children to better schools, from owning cell phones or computers, or from trying to run a family business. She argues that dibao “in many ways confine the payees and their progeny to a long-term life of penury, operatively ensuring that they all be denied any opportunity for upward mobility.” Solinger, “The urban dibao,” p. 4.

46 Other countries that have adopted similar programmes include Austria, Belgium, Canada, Denmark, Finland, France, Ireland, the Netherlands, New Zealand and South Korea. For a comprehensive examination of these policies in the US and the continental Europe, see Alan Duncan, “‘Making work pay’ policies and employment incentives,” paper presented at the CESIfo Conference on Tax Policy and the Labour Market, San Servolo, Venice, 21–23 April 2003.

47 A recent report produced by a panel of 208 Chinese experts stated that China is likely to become a welfare state by 2049, with universal medical care and old age pensions. Xinhua News Agency, “China to become a welfare state by 2049,” 2 November 2008, available at http://china.org.cn/china/national/2008-11/02/content_16700819.htm (accessed 2 November 2008).

* I wish to thank Paul DuongTran, Irwin Garfinkel, Andrew J. Nathan, Carl Riskin, Timothy Smeeding, Dorothy Solinger and Fuhua Zhai for helpful comments and suggestions on this or earlier versions of the article. Part of this research was generously supported by the V. K. Wellington Koo Fellowship awarded through the Columbia University Weatherhead East Asian Institute, the Columbia University Public Policy Consortium Fellowship and the Chiang Ching-Kuo Foundation for International Scholarly Exchange. I am also grateful to the Asian Development Bank, the Ford Foundation and the Swedish International Development Agency who funded the surveys which provide data for this research.

Redistributive Nature of the Chinese Social Benefit System: Progressive or Regressive?*

  • Qin Gao

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