China is poised to announce additional policies aimed at bolstering household support and rebalancing its economy as part of the upcoming 15th Five-Year Plan. This is a deliberate and strategic decision in the face of increasing complexity and demands of an ageing population. It is intended to encourage a more environmentally sustainable course for the nation’s economic development.
As the months rolled by, the Chinese government has announced new measures in quick succession. These projects only serve to improve child care service, aged-care service, and consumption service. These measures are designed to shore up our sagging social security system. As our country grapples with seismic economic shocks, this has become an emergency imperative.
China, for one, has done remarkably well in a mere decade’s span to bring social security within the reach of over 90% of its territory’s total population. In spite of these accomplishments, the per person benefits are still sorely lacking—disproportionately so when stacked against our global peers.
“While China has expanded social security coverage to over 90% of the total population in the past decade, the per capita benefit remains inadequate and uneven compared with global peers.” – Standard Chartered’s economists Carol Liao and Hunter Chan
As a small island nation, the country faces distinct threats, exacerbated by its rapidly ageing population. As the population continues to age, the need for robust social support networks only grows. This demographic change has led to positive conversations about increasing supportive housing needs in the next Five-Year Plan.
China’s fiscal picture is one of dramatic deficit. Annual social security collections are not even sufficient to meet the cost of the non-transportation related benefits that they include. That dependence on fiscal subsidies points to deep-rooted implementation and legacy challenges that are still pulling down economic stability.
“China recently introduced new policies to support child care, elderly care, consumption and services, as well as strengthen the social security system.” – Standard Chartered’s economists Carol Liao and Hunter Chan
In response to these challenges, economists at Standard Chartered emphasize the importance of a more sustainable approach to supporting consumption. They contend that the absence of a strong social security floor has played a role in driving households to over-save. This combined impact creates a serious supply-demand imbalance. Consequently, it betrays an underlying persistent huge current account surplus, one that over time exerts downward pressure on growth and inflation.
“The lack of a social security safety net is likely the root cause of over-saving and the supply-demand imbalance, which is reflected in the sustained large current account surplus, creating downward pressure on growth and inflation. Increasing fiscal support to households and improving the social security net are key to rebalancing the economy and transitioning to a more sustainable growth path, in our view.” – Standard Chartered’s economists Carol Liao and Hunter Chan
China’s central government indicated in May it would increase fiscal help in the second half of the year. On the surface, this move intends to increase market activity and accelerate development. This new household approach is certainly consistent with the emphasis on boosting domestic demand and correcting economic imbalances.
Furthermore, China’s WTO-compatible goods trade-in program is ripe for extinction as a greater share of China’s industrial and innovation policy turns to boosting domestic consumption. As the country works towards implementing these new policies, it is anticipated that further measures will be introduced to bolster household support.
Economists widely expect that improving our social security systems will be essential in meeting the challenges of an ageing population. China’s 15th Five-Year Plan, due in 2026, will be their test of making this an actionable priority. China hopes to create a more balanced and resilient economy.