| Since1978, social security network has been a constraint in pursuing the economic growth in China. In recent years, reform has been implemented in such areas as pension fund, medical care system, unemployment and minimum living standard payment system etc. under the amended laws and regulations. A preliminary social security framework emerged at the beginning of the new century. However, problems and difficulties are still lying in front of the government in constructing the social security network. Particularly, the pension fund system, which involves a couple of generations, faces great challenges. The historical burden and the ageing population put great pressure on the solvency of the pension fund. The scarcity of the investment products impedes improving the return of the funds. In 1990s, the portion of ageing population keeps on growing. In designing the pension fund system, a vital issue need to be solved is to ensure the payment capability in the 2030's when the disbursement peak comes. Hence, it is important and urgent to intensively study the above two issues. Under such background, and based on the international experience and current research, the financing and investment models are discussed in my paper. The qualitative and quantitative methodologies very logically evidence the author's assertion. Reliable and convincing evidence is provided in the paper. It is expected that my research could benefit the academia and industry practitioners.At the beginning of this paper, we see through the history of Chinese pension system to find out what and where is the problem. Since the establishment of Chinese pension system in the 1950's, the Chinese government has took a series of effective measures to improve the pension system. In 1995, the program 'consolidation of the social security plan as a whole and the individual account' was proposed. In 1997, the contribution ratios of the employers and employees, as well as the size of the individual account are standardized across the country. The frame of 'consolidation of the social security plan as a whole and the individual account' was set up. Much attention needs to be paid to the pension fund operations, i.e. investment and financing. As for fund financing, considering the advantages and disadvantages of the three types of financing systems, disbursement features of pension fund, as well as the inevitable trend of ageing population and the social and economic situation of China, the author suggests that partially funded system should be the best choice for the pension system of China. The transition from theexisting PAYGO system to the partially funded system based on the individual account reveals the latent pension fund gap, which could be attributed to the ageing population, the premature retiring age and the damaged toll foundation. The structure and size of the latent debt of pension system of China is analyzed with qualitative and quantitative methodologies. I concluded that: 1. The Age-Dependency Ratio will change from 3.65:1 to 1.87:1. 2. The aggregate fund gap of the social security plan as a whole is RMB1.8 trillion, and annual average is RMB 71.7 billion. 3. The special difficult period is from 2001 to 2006 and the transition cost is about RMB500 billion. Through the analysis of the resource of pension fund in foreign countries during the transition period and the normal period, it is concluded that the sale of state-owned asset and social security tax could be an effective source for pension fund of China. Quantitatively, taking the size of China's stock market into consideration, if we partially sell the state-owned shares to the market, we could raise RMB 261.484 billion for the pension fund of China. Basing on the aggregate employee wage, RMB 987.55 billion in 1999(Statistics, 2000), we could raise RMB148.1325 billion for the pension fund of China by levying social security tax at the rate of 15%. The two figures above reveal that it is necessary to find other sources to supplement the pension fund of China. In ad... |
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