The Causes and Impacts of the Controversy Over the Chinese Government’s Requirement for Mandatory…

Differentiated and Hierarchical Social Insurance Benefits Among Different Status Groups in China: Enormous Gains for Elites Within the System, Mere Scraps for Ordinary People Outside It – Taking Medical and Pension Insurance as Examples　1

The Burden of Social Insurance Contributions on Workers Outside the System and in the Lower and Middle-Lower Classes, and the Limited and Uncertain Benefits They Receive　2

Mandatory Social Insurance Contributions Also Increase the Burden on Business Owners, Weaken Corporate Competitiveness, and Ultimately Shift Costs onto Employees　3

The Real Motive Behind the Authorities' Mandatory Social Insurance Contribution Policy: Financial Strains on Social Insurance Funds, Rising Expenditures, and Declining Revenues　3

Misuse of Social Insurance Funds and the Lack of Oversight　4

Severe Inequality and Unfairness in Social Insurance Benefits: "Negative Welfare" and "Robbing the Poor to Enrich the Rich"　4

China's Economic Downturn and Government Fiscal Strains: The Social Insurance System Faces a Greater Crisis and the Risk of Financial Collapse　5

Mandatory Social Insurance Contributions Enrich Privileged Elites Within the System While Increasing the Burden on Ordinary People: Benefiting Officials Rather Than Citizens, and the Rich Rather Than the Poor　5

The Roots of the Social Insurance Controversy Lie in Unfair Distribution, Stagnant Reform, and the Absence of Democracy: Distribution Is Controlled by Vested Interests, While Ordinary People Are Left as Lambs to the Slaughter　6

Not long ago, China's Supreme People's Court (最高人民法院) issued a judicial interpretation declaring that any employment agreement or labor contract providing for nonpayment of social insurance contributions is invalid. The interpretation officially took effect on September 1. As soon as the news emerged, it sparked enormous controversy.

Social insurance includes pension, medical, unemployment, work-related injury, and maternity insurance. Individuals and enterprises each contribute a portion of the premiums, while the state finances the remainder. Insured individuals receive benefits when they meet the relevant eligibility requirements. Under normal circumstances, such an insurance system should benefit those who participate in it. Why, then, has it provoked such enormous controversy and so many opposing voices?

The reason is that, in China, there are enormous disparities in social insurance benefits among people of different occupational identities and social classes. The benefits are distributed unequally, while social insurance contributions represent a substantial expense for the lower and middle-lower classes, especially those at the bottom of society. Moreover, whether social insurance benefits will be fully honored in the future remains unknown, and the returns on social insurance contributions are fraught with uncertainty.

Regarding disparities in social insurance benefits, medical insurance and pension insurance provide particularly revealing examples. China's medical insurance system is divided into three categories: employees, urban residents, and rural villagers. Further distinctions exist between civil servants and non-civil servants, employees of state-owned enterprises and those of non-state-owned enterprises, and leading officials and ordinary employees. People of different statuses face enormous differences in reimbursement rates, the range of medications and medical services covered, and the convenience of obtaining reimbursement.

For example, senior officials can enjoy reimbursement rates approaching 100%, with virtually no restrictions on the categories of medications, types of surgery, or medical services eligible for reimbursement. This explains the existence of special hospital wards for senior officials, leading officials staying in intensive care units for extended periods with daily nursing costs reaching five-digit figures, unrestricted access to expensive imported medicines, and hospitals welcoming senior officials as patients. Medical expenses for senior officials are often settled directly between hospitals and social insurance agencies, without requiring family members to run around handling reimbursement procedures. Ordinary people, by contrast, are nominally eligible for reimbursement of only around 60% of their medical expenses. In practice, many high-quality, highly effective medications and essential medical procedures are excluded from coverage, while restrictions based on hospital classification and geographical location also apply. Consequently, most medical expenses actually have to be paid out of pocket. Ordinary people also frequently encounter complicated procedures and bureaucratic obstacles when seeking reimbursement for medical expenses – that is, when trying to claim their medical insurance benefits.

The disparities and inequalities in pension payments are even more pronounced. Pension recipients are divided into four categories: government agencies, state-owned enterprises, and public institutions; employees of non-state-owned enterprises; urban residents; and rural villagers. Among these groups, retirees from government agencies, state-owned enterprises, and public institutions receive the highest pensions, with amounts increasing according to their administrative or professional rank. Employees of non-state-owned enterprises receive significantly lower pensions, while urban and rural residents receive the lowest amounts, with rural residents receiving even less than urban residents.

For example, according to information released by the Social Insurance Bureau of Yingtan, Jiangxi Province (江西鹰潭社保局), concerning pension payments in January 2023, the authorities distributed 69.09 million yuan in pensions to 13,600 retired government officials and public-sector personnel; 178.85 million yuan to 75,500 enterprise retirees; and 28.54 million yuan to 137,800 urban and rural residents who had contributed to pension insurance. Calculations based on these figures show that the average monthly pension was 5,080 yuan for retirees from government agencies and public institutions, 2,368 yuan for enterprise retirees, and 207 yuan for urban and rural residents. In addition, farmers who had not contributed to pension insurance received a basic monthly pension of only 123 yuan.

Other components of social insurance, including work-related injury, unemployment, and maternity protection, likewise provide significantly better benefits to those within the system than to those outside it. Even when both groups pay the relevant insurance contributions, people within the system can obtain generous subsidies relatively easily, whereas those outside it, especially members of the lower and middle-lower classes, encounter numerous procedural and bureaucratic obstacles when applying for subsidies or compensation. Even after considerable effort, the amounts they ultimately receive are very limited.

The inequalities in medical insurance, pensions, and other social insurance programs are not confined to the distribution of benefits; unfairness is already deeply embedded in the contribution process itself. Under normal circumstances, those who contribute more should receive more, or those who are relatively poorer and more vulnerable should receive relatively greater benefits, or the system should combine both principles. These are fundamental characteristics and original purposes of insurance systems. In China's reality, however, there is a serious inversion between insurance contributions and the benefits received.

The most obvious example is the so-called "deemed contribution" policy (视同缴纳). Under ordinary rules, leading officials and senior personnel in government agencies and state-owned enterprises who failed to make regular insurance contributions when they were younger, for various reasons, or whose contributions were interrupted, would not qualify for medical, pension, and other benefits reserved for those who had paid their contributions regularly and on time. However, after the introduction of the "deemed contribution" policy, officials and employees who had not contributed in earlier years or whose contributions had been interrupted could still enjoy normal medical reimbursement and pension benefits. For example, someone who worked for 40 years but did not contribute to social insurance for 30 of those years could nevertheless have their pension calculated and paid, and their medical expenses reimbursed, as though they had contributed for the full 40 years. Moreover, most of these beneficiaries are government leaders and middle- or senior-level personnel in state-owned enterprises, enabling them to receive substantial pensions and enjoy free, high-quality medical care.

The Burden of Social Insurance Contributions on Workers Outside the System and in the Lower and Middle-Lower Classes, and the Limited and Uncertain Benefits They Receive

Meanwhile, ordinary employees, particularly those working for non-state-owned enterprises, as well as ordinary urban residents and farmers, often lose their eligibility for medical reimbursement and pension benefits if they fail to contribute, make payments late, or experience interruptions in their contributions. Some must make retroactive payments covering several previous years of unpaid social insurance contributions before they can regain coverage. For example, the minimum contribution period for China's national pension insurance is 15 years, with additional tiers of 25, 30, and 40 years, and there are substantial differences in the pension amounts received after retirement. If someone has contributed for fewer than 15 years, they cannot receive pension benefits even if they have already paid some contributions. Instead, they must continue contributing beyond retirement age until they have accumulated 15 years of contributions. This is undoubtedly highly disadvantageous to many workers whose employment is unstable, whose employers do not comply with regulations, or who are sometimes forced to suspend contributions because of financial pressures. Such workers are concentrated among the lower and middle-lower classes outside the system.

Particularly noteworthy is the situation of farmers who, before the abolition of the agricultural tax, had to labor hard every year to pay "public grain" (公粮, an agricultural tax paid in kind) and various other burdensome taxes and levies. Their history of paying agricultural taxes is not recognized as social insurance contributions, nor is it treated as "deemed contributions." They can receive only a little over 100 yuan in basic monthly pensions, although previously they could not even receive that amount. Yet the value of the public grain and other miscellaneous taxes they paid in earlier years, adjusted for inflation, far exceeds this meager monthly pension of just over 100 yuan. The government nevertheless disregards these past contributions. Farmers who want medical insurance and reimbursement for medical expenses must enroll in and contribute to the New Rural Cooperative Medical Scheme (新农合). The required contribution has continued to rise, reaching 400 yuan per year this year, which is already a considerable amount for impoverished farmers. For those over 60 who have no other income, this means spending approximately 30% of their pension on the New Rural Cooperative Medical Scheme merely to obtain limited medical coverage.

For most workers outside agriculture, including those in manufacturing and services, contributing to social insurance is likewise not necessarily a matter of benefits outweighing costs, or at the very least requires careful consideration of the trade-offs. According to multiple statistical sources, ordinary workers who contribute to social insurance pay approximately 10% of their wages in contributions (8% for pension insurance, 2% for medical insurance, and 0.5% for unemployment insurance). For middle- and high-income groups, people with relatively stable incomes, and those in relatively comfortable material circumstances, this proportion is still fairly reasonable. (However, if housing provident fund contributions amounting to another 5% – 12% of wages are included, the financial pressure becomes considerably greater.)

But for low- and middle-income groups, people with unstable incomes, and those experiencing financial difficulties, this 10% is extremely important, and paying it into social insurance becomes a heavy burden. For workers earning "3,000 yuan a month" or even less, as well as white-collar and blue-collar workers whose incomes may not be particularly low but who must support elderly parents and young children, repay mortgages and car loans, maintain emergency savings in case of unexpected events, and stretch every penny as far as possible, surrendering 10% of their income to social insurance is extremely painful and difficult to accept.

Moreover, interruptions in social insurance contributions caused by resignation or other personal circumstances can affect the accumulated contribution period and a person's ability to claim social insurance benefits. For many people without stable employment, it is difficult to guarantee uninterrupted contributions. Those who contribute intermittently find it even harder to obtain the full protection offered by social insurance. This leads more people to prefer not contributing at all.

Beyond their immediate financial difficulties, many people also worry about the long-term returns and potential losses associated with social insurance. Pension benefits can only be collected upon retirement, at around the age of 60, but individuals do not know how long they will live or whether they might suffer an accident. As for medical insurance, people who do not fall ill, or who are only occasionally ill, may feel that they are "losing out" by paying for coverage. Of course, if they do become ill, especially with a serious disease, they suffer physically and psychologically and still have to pay a substantial portion of their medical expenses out of pocket. Although medical insurance does in fact provide important protection, many people nevertheless feel that they are getting a bad deal. As for unemployment and housing protection, many people cannot obtain unemployment benefits even when they lose their jobs (social insurance authorities often find various reasons to refuse payment), while housing benefits are not necessarily accessible in practice. Work-related injury and maternity insurance likewise involve numerous eligibility requirements and obstacles when people attempt to claim their benefits.

Faced with these risks and uncertainties, as well as immediate pressures in their daily lives, choosing not to contribute to social insurance and instead saving the money for personal use has become a natural choice for many people. Although this is detrimental to their prospects of obtaining stable and adequate social protection in the long run, particularly because they may be unable to receive a pension in old age, it is nevertheless a reluctant choice made after weighing the competing considerations.

Mandatory Social Insurance Contributions Also Increase the Burden on Business Owners, Weaken Corporate Competitiveness, and Ultimately Shift Costs onto Employees

For non-state-owned enterprises and small and medium-sized businesses that employ workers, many are likewise unwilling to pay social insurance contributions for their employees in order to reduce labor costs. Compared with individuals, enterprises must contribute a higher percentage for each employee, averaging around 20% of the employee's wages. Combined with the approximately 10% contributed by the individual, this means that roughly 30% of each worker's wages must be paid into social insurance. If housing provident fund contributions are also included, as much as 40% of an individual's wages cannot be "safely pocketed" but are instead "held" by the government.

As the saying goes, "the wool ultimately comes from the sheep." Although employers' social insurance contributions are nominally deducted from corporate profits, in reality, businesses compensate for these expenses by suppressing employees' wages and benefits. Ultimately, it is still employees who bear the costs of social insurance. There are also cases in which an enterprise pays social insurance contributions for its employees while maintaining the same wage levels it would have paid without making those contributions. However, in such circumstances, the enterprise faces increased risks and financial pressures, affecting its ultimate profitability and competitiveness relative to other businesses.

Compared with state-owned enterprises, which are generally larger, possess abundant resources, and enjoy strong policy support, most private enterprises are smaller, face greater operational pressures, and have lower profit margins. If the burden of social insurance contributions increases, private enterprises, which already struggle to survive, will become even more vulnerable. In recent years, the economic downturn, compounded by the impact of the COVID-19 pandemic, has already left many private enterprises in difficult circumstances. Mandatory social insurance contributions will only make their situation worse. Moreover, because both workers and enterprises must pay social insurance contributions and consequently face greater financial pressure, labor-management tensions will intensify, business operations and development will become less stable, and ultimately both business owners and ordinary workers will suffer.

Although the law requires both workers and employers to pay social insurance contributions, making nonpayment illegal, in practice the authorities have long tended to "turn a blind eye," while judicial authorities have generally followed an approach of "no complaint, no intervention." This has allowed enterprises and individual workers to decide whether to contribute to social insurance according to their own circumstances, giving them greater autonomy and flexibility.

However, the latest judicial interpretation issued by the Supreme People's Court means that companies and individuals must pay social insurance contributions; otherwise, their labor contracts will be invalid, and the legal rights and interests of both employees and employers cannot be protected. In reality, the Supreme People's Court's decision reflects the will of the Communist Party and the attitude of the government. In other words, the Chinese authorities are requiring workers to make mandatory social insurance contributions. Furthermore, under various local policies, not only employees of formally registered enterprises but also self-employed business owners, small street vendors, and other "flexibly employed workers" (灵活就业人员) must contribute to social insurance. Otherwise, their children's access to education and other rights and benefits may be affected. This means that even more people will face the financial burden imposed by mandatory social insurance contributions.

The Real Motive Behind the Authorities' Mandatory Social Insurance Contribution Policy: Financial Strains on Social Insurance Funds, Rising Expenditures, and Declining Revenues

The Chinese authorities' stated reason for requiring workers to contribute to social insurance is to regulate employment practices and protect workers' rights and interests. In reality, however, the policy is an attempt to expand the sources of social insurance reserves in response to increasingly strained funds and the growing prospect of financial shortfalls.

In recent years, social insurance funds, particularly the funding pools for medical and pension insurance, have come under increasing financial pressure. Some regions, such as Northeast China and western China, already face expenditures exceeding revenues and require fiscal transfers from the southeastern coastal regions and other areas. In 2024, expenditures from China's national medical insurance fund increased by 5.5%, while revenues grew by only 4.4%. As population aging intensifies, the number of people contributing to social insurance is declining while the number receiving benefits is increasing, making future shortfalls increasingly severe. Official projections indicate that the annual pension fund balance will turn negative in 2028 and that accumulated pension reserves will be exhausted by 2035.

Misuse of Social Insurance Funds and the Lack of Oversight

Apart from the effects of population aging and other social developments, social insurance funds have also been embezzled, misappropriated, and misused by local governments and relevant institutions. According to official reports from China's National Audit Office (国家审计署), some local governments have diverted social insurance funds to purposes unrelated to social insurance, including emergency public welfare expenditures, debt repayment, and infrastructure construction. Such practices have further aggravated the financial strain on social insurance funds. Although some of these expenditures may also serve legitimate public welfare purposes, "robbing Peter to pay Paul" inevitably undermines the reliability of social insurance payments. Using these funds to repay debts or finance infrastructure projects deviates even further from the purpose of social insurance: the government is using the people's money to repay its own debts and enhance its political achievements.

The storage and use of social insurance funds are also opaque to the public. Citizens cannot monitor where the social insurance contributions they pay actually go, and they cannot even clearly ascertain the true figures concerning the national social insurance funding pool. This lack of transparency itself increases the risks of corruption and misappropriation. Naturally, the public becomes even more concerned that the benefits promised in exchange for their contributions may never materialize, and that the money they worked so hard to earn and pay into the system will simply go down the drain.

Severe Inequality and Unfairness in Social Insurance Benefits: "Negative Welfare" and "Robbing the Poor to Enrich the Rich"

The most serious problem, however, remains the inequality and injustice in the distribution of social insurance benefits. China's social insurance policies are significantly tilted toward elites within the system who hold power and determine policy, while disadvantaging ordinary people who lack power and influence. As mentioned earlier, government officials and employees of state-owned enterprises and public institutions enjoy the highest levels of medical, pension, work-related injury, and other forms of protection. By contrast, the social insurance benefits available to employees of non-state-owned enterprises, especially small and medium-sized businesses, are often only 20% – 50% of those enjoyed by the former group. Ordinary urban and rural residents, including self-employed individuals, receive even more meager benefits. Yet the funds supporting these benefits come from social insurance contributions and taxes paid by the entire population.

This means that government officials whose social insurance contribution periods are "deemed to have been paid" receive pensions and medical insurance benefits financed by ordinary citizens who have actually paid social insurance contributions. Although many employees of government agencies, state-owned enterprises, and public institutions have indeed paid relatively high social insurance contributions, the pensions, medical reimbursements, work-related injury subsidies, and other benefits they ultimately receive are still significantly greater than those received by employees of non-state-owned enterprises and ordinary urban and rural residents.

Such a system of social insurance contributions and distribution can be described as a form of "negative welfare" that "robs the poor to enrich the rich." A normal social security system generally favors the poor and vulnerable: the poorer a person is, the lower the cost of obtaining medical and pension protection and the greater the relative benefits received. Wealthier people, meanwhile, are expected to bear relatively higher costs. This is also the original purpose of a normal social security system: to narrow the gap between rich and poor and promote social justice through collective participation in insurance by citizens.

In China, however, the longstanding reality has been that the more power, wealth, and status people possess, the more social protection they can enjoy from the state. Moreover, they often need to contribute very little in advance, or may even have their contribution obligations effectively written off through arrangements such as "deemed contributions." Conversely, the less power ordinary people in the lower and middle-lower classes possess, the more they must pay in various social insurance contributions and taxes in exchange for meager protection.

Even during the eras of Mao Zedong (毛泽东) and Deng Xiaoping (邓小平), farmers and other vulnerable groups were required to pay agricultural taxes and other levies while receiving virtually no effective institutional protection in medical care, pensions, or other areas. Although the Mao era had a cooperative medical system centered on "barefoot doctors" (赤脚医生), it was extremely rudimentary and of poor quality, and could not treat most serious illnesses. Meanwhile, government officials enjoyed publicly funded medical care, which was often entirely or largely free for the individual. The free portion was financed by the state, government institutions, or state-owned enterprises, with the funds ultimately coming from all workers and taxpayers.

Since the beginning of the 21st century, China's social security system has gradually shifted from what was once entirely "negative welfare" toward "zero welfare" and "positive welfare." In other words, ordinary people and vulnerable groups have begun to receive some social protection, bringing the system somewhat closer to those of normal countries. In particular, farmers at the bottom of society have gained access to modest basic pensions and medical insurance protection against major illnesses, benefits they had never previously enjoyed.

Nevertheless, viewed in terms of the social insurance system and its distribution mechanisms as a whole, China can still be described as a "negative welfare" state. This is because powerful and privileged groups, government officials, and elites within the system continue to receive excellent social welfare protection at relatively low costs – paying relatively little in taxes and social insurance contributions compared with their incomes – while enjoying high salaries, substantial pensions, and generous medical reimbursement. Meanwhile, ordinary people in the lower and middle-lower classes outside the system must still bear costs that are relatively high in relation to their financial circumstances merely to obtain welfare protection sufficient to maintain a basic standard of living. Moreover, if they experience a major crisis, such as a serious illness, bankruptcy, or an accident, their basic welfare protection is far from sufficient to help them overcome the difficulties. Such crises may also prevent them from continuing to contribute to or receive social insurance benefits, trapping them in a vicious cycle.

The differences between the social insurance contributions and benefits of privileged officials and bureaucrats within the system and ordinary people outside it can be illustrated numerically. Suppose someone within the system contributes 1,000 yuan and receives 10,000 yuan in benefits, while someone outside the system contributes 500 yuan and receives 2,000 yuan. Although the person within the system contributes more, both the rate of return and the total amount of benefits are clearly higher than those received by the person outside it. Moreover, for people outside the system who lack protection and a sense of security and face financial difficulties, that 500 yuan is often more important than 1,000 yuan is to those within the system. People within the system can easily afford to contribute 1,000 yuan to social insurance, while those outside it must think carefully and cut back on expenses even to contribute 500 yuan.

China's Economic Downturn and Government Fiscal Strains: The Social Insurance System Faces a Greater Crisis and the Risk of Financial Collapse

In the longer term, there is a substantial possibility that China's social insurance system, particularly medical and pension insurance, will experience a financial collapse. A national social insurance system may appear authoritative and reliable, but in essence it shares fundamental similarities with commercial insurance, corporate investment, and even pyramid schemes: all require a continuous inflow of new participants or funds, with revenues exceeding financial shortfalls, in order to sustain operations resembling a game of "passing the parcel." The difference between national social insurance and commercial activities is that the state has fiscal resources to serve as a backstop, cover shortfalls, and provide guarantees. However, the healthy functioning of a national social insurance system depends on a growing economy, a relatively young population, abundant fiscal resources, and political stability. Under such conditions, national social insurance funds can maintain surpluses, or at least balance revenues and expenditures, and afford the enormous costs of medical care, pensions, and other benefits for the population.

China's current situation, however, is characterized by an increasingly sluggish economy, severe population aging, a low birth rate, fiscal constraints, and risks and pressures across all sectors of society. Under these circumstances, it is difficult to expect sufficient funds to be available in the future to guarantee normal social insurance expenditures. In fact, in recent years, reports have already emerged from various institutions in some less-developed regions of their inability to pay salaries, pensions, and medical insurance reimbursements normally. Such incidents have so far remained relatively scattered and isolated. However, as economic conditions continue to deteriorate and fiscal pressures intensify, a nationwide financial collapse of the system may well occur. During the COVID-19 pandemic from 2020 to 2022, not only was the economy severely affected, but enormous amounts of medical insurance funds were also spent on nucleic acid testing, the construction of makeshift hospitals, and other measures, resulting in massive waste. The tightening of medical insurance reimbursement in subsequent years, and the inability of many people to obtain normal reimbursement, are among the lingering consequences of this misuse of medical insurance funds.

It is against this background that the authorities introduced the "new policy" of mandatory medical insurance contributions, presented in the form of a judicial interpretation and under the banner of "protecting workers' rights and interests." If the economy were flourishing and the future could confidently be expected to improve, standardizing the social security system could indeed be a beneficial measure. Under present circumstances, however, it merely imposes a heavier financial burden on ordinary Chinese people, especially workers in the lower and middle-lower classes. Moreover, it is difficult to be optimistic about whether pension and other social insurance benefits will actually be paid as promised in the future.

Furthermore, judging from the Chinese authorities' previous conduct on various issues, such as the family planning policy and the policy of common prosperity, they have repeatedly made attractive and solemn promises only to break them later. For example, when promoting the family planning policy, the government claimed that it would assume responsibility for supporting the elderly parents of only children, as reflected in the slogan, "Having just one child is good; the government will provide for you in old age" (只生一个好，政府来养老). Yet when the parents of the only-child generation reached old age, the message changed to "You cannot rely on the government for old-age support" (养老不能靠政府). During the period of reform and opening up, Deng Xiaoping also advocated that "those who become rich first should help others become rich later" (先富带后富) and promoted "common prosperity" (共同富裕). He also stated, "If reform leads to polarization between rich and poor, it will have failed." Today, however, the wealth gap, class rigidity, and privileges enjoyed by powerful elites have become increasingly severe. These precedents make it difficult for Chinese people to place confidence in the rosy promises made by the authorities concerning social insurance policies. Instead, they are filled with skepticism about whether those promises will be honored.

Regardless of whether individuals will eventually receive the pensions and medical insurance reimbursements to which they are entitled, one thing is certain: a large portion of the social insurance contributions being paid today will be used to finance the pensions of current retirees and the medical expenses of those who are ill. Among the principal beneficiaries are privileged elites and leading officials within the system who receive substantial pensions and full medical reimbursement, as well as many mid-ranking civil servants and state-owned enterprise employees who occupy their positions without performing meaningful work. In exchange for relatively small social insurance contributions, they receive generous benefits, enjoying enormous returns on minimal investment and virtually guaranteed security regardless of circumstances.

The distribution of social insurance benefits operates through multiple parallel systems, while the sources of social insurance funding are pooled together. This means that much of the money paid by ordinary citizens is used to support the privileged. At a time when ordinary Chinese people already have meager incomes, forcing them to contribute to social insurance in order to support privileged elites within the system is clearly a case of "robbing the poor to enrich the rich."

Moreover, as the number of retirees continues to increase and the labor force continues to shrink, each ordinary worker will have to support an increasing number of privileged beneficiaries within the system, placing an ever-heavier burden on workers. Some workers become ill from years of overwork and may still be unable to afford treatment even if half of their medical expenses are reimbursed. If they die before reaching the age of 60, their expected pension benefits will be lost. Even if they live beyond 60, there is no guarantee of how long they will be able to collect their pensions. Although their family members can indeed withdraw the remaining balance in their social insurance accounts, inflation means that the money withdrawn will have lost purchasing power compared with the same nominal amount when it was originally contributed. Moreover, individuals may not necessarily wish to leave this money to their families, and some may have no heirs at all.

Mandatory social insurance contributions also mean that enterprises must pay approximately twice as much as their employees in social insurance contributions. In today's already intensely competitive environment of "involution" (内卷), businesses seeking to maintain their profits – or even merely reduce their losses – have little choice but to shift their share of social insurance costs onto employees, either by reducing wages or by increasing working hours and labor intensity. Both business owners and employees face greater pressure and must work harder and endure more exhaustion simply to maintain their previous levels of income. The business environment will inevitably deteriorate further, with increasingly intense involution, unfair competition, and bankruptcies.

It is true that most countries around the world, particularly most developed countries, have mandatory social insurance contribution policies. In countries such as Germany, France, Japan, South Korea, and Canada, workers and enterprises are required to contribute to social insurance, with total contributions reaching 40% of wages or even more. However, these countries are able to distribute social insurance benefits fairly among their citizens, give relatively greater consideration to vulnerable groups, and ensure that benefits are paid in a timely manner. The collection, expenditure, and financial condition of social insurance funds are also subject to public oversight. Under democratic systems, adjustments to social insurance policies are determined by the will of the majority. China's situation is entirely different from that of these countries.

Clearly, the Chinese authorities' policy of mandatory social insurance contributions is detrimental to most workers, business owners, and the business environment, while benefiting those within the system who enjoy generous social protection and receive substantial pensions. It is therefore hardly surprising that the policy has provoked a public backlash, that people are unwilling to be forced to contribute to social insurance, and that some have even chosen to "stand on the same side as the capitalists (business owners)."

The core problems underlying the current controversy over mandatory social insurance contributions, as well as the broader social insurance system, are unfair distribution, the meager incomes of the lower and middle-lower classes, and the hardships they face in everyday life. Since the beginning of reform and opening up, China's economy has developed at an extraordinary pace, and the country has indeed "become wealthier." However, the gap between rich and poor has also continued to widen. Although people in the lower and middle-lower classes have largely overcome the problems of hunger and basic subsistence, their incomes remain meager. They can barely sustain their daily lives, while the burdens they face remain heavy. Most Chinese people are still far from materially affluent, and their lives lack a sense of security. They remain in a vulnerable position, unable to withstand substantial risks and pressures. Social insurance was originally intended to narrow the wealth gap, guarantee ordinary people's basic livelihoods, and strengthen their sense of security. In China, however, it has become a means for the government to extract wealth from the people and lavish resources on officials and the privileged, imposing additional burdens on ordinary citizens. People's dissatisfaction with mandatory social insurance contributions is therefore another eruption of anger over deeper structural injustices in society.

Although the Chinese authorities repeatedly emphasize the need to reform the distribution system in official propaganda and textbooks, using expressions such as "increasing the share of household income in national income and the share of labor remuneration in primary distribution," "placing greater emphasis on fairness in redistribution," and "addressing the problems of inadequate and uneven development and national income," these objectives have not been translated into reality. There is a profound gulf between the rhetoric of official propaganda and the realities of society.

To resolve the social insurance controversy and truly transform social insurance into a beneficial instrument for promoting fairness and protecting people's livelihoods, China must reform its distribution mechanisms. Fairness must be emphasized in both primary distribution and redistribution, the incomes of people in the lower and middle-lower classes must be increased, and the hierarchical and multi-track systems of welfare protection must gradually be abolished. Corruption within the distribution system and the operation of social insurance must also be combated. Social insurance funds must genuinely be "collected from the people and used for the people" (取之于民，用之于民), with a high degree of transparency and public oversight. Of course, the most important thing is for all these measures to be implemented in practice rather than remaining merely slogans in propaganda and textbooks.

What makes the situation pessimistic, however, is that China's political and institutional system has become increasingly conservative in recent years, reforms to the distribution system have stagnated, and class rigidity has grown ever more severe. Meanwhile, the absence of political reform and the people's inability to exercise power have fundamentally blocked the possibility of various beneficial reforms. Power is accountable only to the source from which it derives. In China, power is concentrated in the hands of a small minority of vested interests, who naturally refuse to relinquish their privileges and benefits, including their high incomes and generous social protection. If China cannot achieve democratization and ordinary people cannot participate in "dividing the cake," then they can only become the "cakes" on the menu, ordered and devoured by the powerful and privileged figures and their followers gathered around the dining table. Before fundamental institutional change takes place, the various hardships affecting people's livelihoods, including the social insurance controversy, are unlikely to be properly resolved.

(This article was written by Wang Qingmin (王庆民), a Chinese writer and international political affairs researcher based in Europe. The original text is in Chinese.)

References (参考资料):

"China's Dual-Track Pension System" (养老金双轨制) – China Digital Times (中国数字时代)

https://chinadigitaltimes.net/space/%E5%85%BB%E8%80%81%E9%87%91%E5%8F%8C%E8%BD%A8%E5%88%B6⁠

"An Article by Yingtan's Social Insurance Bureau Simply Told the Truth, but Inadvertently Exposed an Uncomfortable Reality" (鹰潭社保的一篇文章，只不过说了实话，却不小心捅破了一层窗户纸) – NetEase Official Account (网易公众号)

https://m.163.com/dy/article/HRFNN3140539E5LQ.html?spss=adap_pc⁠

"China's Mandatory Social Insurance Contribution Policy to Take Effect in September, Expected to Impact Small and Micro Enterprises" (中国社保强制缴纳政策9月生效料对小微企业造成冲击) – Lianhe Zaobao (联合早报)

https://www.zaobao.com.sg/finance/china/story20250808–7310327⁠

"Why Are Imported Medicines Difficult to Find in Hospitals? Doctors and Manufacturers Explain the Reasons" (医保进口药在医院难找到？医生、厂商解答背后原因) – National Business Daily (每日经济新闻)

https://m.nbd.com.cn/articles/2025-02-13/3751201.html⁠

"Essential Medicines Not Covered by Insurance, Thousands of Drugs Must Be Paid for Out of Pocket: Patients Lament Their Difficult Lives" (基础药不报销千种药品需自费患者叹日子艰难) – Radio Free Asia (自由亚洲电台)

https://www.rfa.org/mandarin/yataibaodao/huanjing/ql1-06282022041159.html⁠

"Proposal to Substantially Increase Pension Benefits for Farmers" (建议较大幅度调高农民养老金待遇) – Yicai (第一财经)

https://www.yicai.com/news/102145504.html⁠

"Improving the Income Distribution System" (完善收入分配制度) – Qiushi Journal (《求是》杂志)

http://www.qstheory.cn/20241213/99d5265ba425490faf0651fd76bbb8d2/c.html⁠

"Lu Xiguang: Reforming China's Income Distribution System Is an Urgent Priority" (卢锡光：中国分配制度改革是当务之急) – Lianhe Zaobao (联合早报)

https://www.kzaobao.com/news/opinion/202507/0346102.html#google_vignette⁠

"Chinese Authorities Acknowledge Severe Challenges Facing Social Security Funds; Experts Say Proposed Solutions Lack Feasibility" (中国官方承认社保基金形势严峻，专家：解决之道缺乏可行性)

https://www.voachinese.com/amp/china-plans-bigger-stronger-social-security-fund-to-aid-ageing-society-20240820/7749472.html⁠

"An Analysis of the Hidden Truth Behind the Massive Pension Fund Deficit" (养老金巨额亏空黑幕解读) – Phoenix News Special Report (凤凰网专题报道)

https://finance.ifeng.com/news/special/yljkk⁠

"Why More and More Young Chinese People Are Reluctant to Contribute to Pension Insurance" (为什么越来越多中国年轻人不愿交养老金) – The New York Times (纽约时报)

https://cn.nytimes.com/china/20240408/china-pensions-youth-retirement/⁠

Contents

The Causes and Impacts of the Controversy Over the Chinese Government's Requirement for Mandatory Social Insurance Contributions, and How It Reveals China's Structural Injustice and the Vulnerability of Its Lower and Lower-Middle Classes