China's Social Policy

Transformation and Challenges

Kinglun Ngok, Chak Kwan Chan

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9781138476332
• eBook ISBN: 9781317937005
• Edition: 1
• Topic: Social Sciences
• Subtopic: Ethnic Studies
• Index: Social Sciences

This book critically and comprehensively examines China's welfare development amidst its rapid economic growth and increasing social tensions. It covers the main policy areas from China's inception of the open door policy in 1978 to the new administration of Jinping Xi and Keqiang Li, including social security, health, education, housing, employment, rural areas, migrant workers, children and young people, disabled people, old age pensions and non-governmental organisations. In particular, it critically analyses the impact of policy changes on the well-being of Chinese people

Part 1
Policy development and policy making in China

1
Introduction

Rebuilding a welfare system for China’s mixed economy

Chak Kwan Chan

Introduction

Prior to its economic reform in 1978, China experienced great social and political turmoil as its leader Zedong Mao launched a nationwide ‘Cultural Revolution’, attacking ideologies and economic practices that violated Marxist doctrines. The Cultural Revolution marked one of the darkest times in Chinese history as the entire country was driven to engage in class struggles. All citizens were involved in political campaigns for getting rid of persons suspected of being followers of capitalism, against the communist party or against the proletarian revolution. Political repression had ‘affected absolutely all tiers of government’; and ‘the country was thoroughly disrupted’ (Abramyan 2008: 97). As a result of the Cultural Revolution, millions of people died and little effort was paid by the government to develop China’s economy between 1966 and 1976. By the end of the Cultural Revolution in 1976, China had devolved into being one of the most backward and poorest countries in the world.

After the death of Zedong Mao and the arrest of the ‘Gang of Four’, who had been accused of abusing political power and suppressing opposition cadres, Xiaoping Deng came to power in 1978 and faced numerous challenging tasks for rebuilding China’s economy. Ideologically, the Chinese people were strongly attached to rigorous Marxist economic doctrines and Zedong Mao’s thoughts; previous economic reforms associated with a market economy had been condemned by Mao and his followers as violating Marxist teachings.

In order to emancipate the thinking of the public, Deng argued that any valid proposals for developing socialism in China needed to be tested by the real world. In his words (1978), ‘Seeking truth from facts is the basis of the proletarian world outlook as well as the ideological basis of Marxism’. During the time of the Cultural Revolution, Zedong Mao (Former Chairman of the Communist Party of China) was politically constructed to be a god; the public were asked to strictly follow his teachings. After the Cultural Revolution, many communist cadres were still constrained by the doctrine of ‘two whatevers’ – ‘we will resolutely defend whatever policy decisions Chairman Mao has made and unswervingly follow whatever instructions Chairman Mao has given’ (China.org.cn 2008). Deng attempted to unlock the thoughts of the Chinese Communist Party by stressing that China’s development needed ‘large numbers of pathbreakers who dare to think, explore new ways and generate new ideas’ (Deng 1978). Deng’s argument on ‘seeking truth from facts’ and his emancipating ideology paved the way for reforming China’s economy.

However, China’s economic reform for enhancing productivity had destroyed its traditional socialist welfare system centered on ‘communes’ in the countryside and ‘work units’ in the cities (see Chapters 3 to 7). As a result, various welfare initiatives were implemented over the past three decades to address the welfare needs of the public (see Chapters 3 to 8). Thus, welfare reform in China since 1978 seems to be an attempt to build a new system that is compatible with its mixed economy. This introductory chapter consists of two sections. Section one discusses China’s key economic changes and welfare responses, while section two points out the main issues addressed by this edited volume.

Economic changes and welfare responses

In the early stage of economic reform, the Chinese government granted more power to peasants and managers of state-owned enterprises (SOEs) to make decisions. It should be noted that China’s economic reform was actually secretly started in Xiaogang village in Anhui province in 1978 and this practice was later adopted by the central government in 1981 as a national policy called ‘household contract responsibility system’ (China.org.cn 2014). The system granted individual households the right to manage public-owned farmlands through long-term contracts (China.org.cn 2008; see Chapters 5, 9 and 11). Accordingly, a household’s income is linked to its members’ contributions. The Chinese government aimed to use this arrangement to increase production by releasing the productive forces in rural areas (People’s Daily Online 2008). As a result of this policy, the annual growth rates for grain, cotton and oil-bearing crops were 4.8 per cent, 17.7 per cent and 13.8 per cent respectively between 1978 and 1984 (Lin 1989). Seeing the success of the agricultural reform, Chinese leaders turned to the industrial sector, attempting to increase the work motivation of state enterprises through a ‘contract responsibility system’. Deng (1978) pointed out that ‘enterprises and pro duction teams should be given greater powers of decision regarding both operation and management’. He believed that this strategy could tackle bureaucracy, enhance motivation and creativity, and allocate ‘rewards and penalties fairly’ (Deng 1978). In 1988, the central government passed the Ordinance on the Contracted Management of State-owned Enterprises by granting managers of enterprises more autonomy on production. Accordingly, factory managers were contracted to operate factories owned by local governments. They were responsible for day-to-day management and could receive bonuses if they fulfilled the production targets (Oi 1992). Later, a ‘tax-for-profit’ scheme was introduced which allowed a SOE to dispose of its profits (Chan 2008). As a result of the new economic policies, China’s gross national product (GNP) and per capita GNP increased twofold. She was ‘the most successful of the socialist states in implementing economic reform’ (Oi 1992: 99).

Prior to 1978, unemployment was nearly non-existent in China because the Chinese government assigned jobs to all citizens. After the economic reform, the public was encouraged to seek jobs in the open market. The implementation of the ‘employment contract’ and the passing of a bankruptcy law in 1986 officially declared the end of full employment in China. As numerous enterprises either suffered profit losses or went bankrupt, the central government had little choice but to introduce an unemployment insurance scheme and an old age pension insurance scheme for workers of SOEs in 1986 and 1991, respectively (Chan 2008; see Chapters 4 and 5). These policies suggested that welfare reforms in the early stage of China’s economic reform were relatively passive, mainly responding to the deteriorating welfare functions of local and central governments’ enterprises. The central government also did not have an overall blueprint to build a new welfare system to replace the old one.

It should be noted that the contract responsibility system introduced in the early stage of China’s economic reform had two obvious limitations. First, the management of many enterprises was still too bureaucratic, creating unfair rewards and, at the same time, undermining workers’ motivation. Second, the economic activities of small enterprises were constrained by a large number of medium and large SOEs that did not follow market forces in the process of production (Chan 2008). Because of these constraints, Chinese leaders took a bold step by transforming its traditional SOEs into modern economic entities.

As China was ruled by a Communist Party, expected to build a socialist economy, any further economic reform beyond the boundary of the ‘contract responsibility system’ needed to be backed up by sound ideologies that do not deviate from Marxist teachings. It seems that Chinese leaders used two strategies to convince their followers that further and radical reforms were still within the sphere of socialism. The first is, they stressed that different countries took different paths to achieve a socialist society. Therefore, China should be allowed to choose its own path based on its unique features. In other words, China should build ‘a socialist economy with Chinese characteristics’ (Jiang 1997). The second is, Chinese leaders claimed that ‘China is currently in the primary stage of socialism and will remain in this stage for a long time to come’ (Jiang 1997). In order to develop productive forces in this stage, China should combine ‘socialism with the market economy’, which was ‘a historical stage we cannot jump over’ (Jiang 1997). In short, these claims were used to justify the introduction of market forces and the transformation of SOEs into modern economic enterprises. Zemin Jiang, China’s Chairman, argued that China should uphold and improve the basic economic system in which the socialist public ownership is dominant and diverse forms of ownership develop side by side:

we should uphold and improve the socialist market economy so that the market will play a basic role in the allocation of resources under state macro-control; we should uphold and improve different modes of distribution with distribution according to work remaining dominant, allowing some people and some areas to become prosperous first so that they can help others to get well-off and achieving common prosperity step by step; and we should uphold and improve opening up and take an active part in international economic cooperation and competition.

(Jiang 1997)

The above announcement suggested that Chinese leaders had adopted a pragmatic approach to increase the productivity of China’s economy. They no longer took a hostile attitude towards capitalism and market forces. Instead, they combined socialism and capitalism with the hope of changing China into a prosperous country. Therefore, China was no longer a socialist economy in reality but a mixed economy formed by various economic entities.

Before the end of Jiang’s administration, the central government called for more economic reforms. There were several proposals to further develop China’s mixed economy (CCCPC 2003). The first one was the promotion of ‘diversified forms of public ownership’. Particularly, the central government attempted to establish ‘a share-holding system’ for public enterprises. The second one was to introduce ‘a modern property rights system’ that clearly defined ownership rights and liabilities. The third one was to promote the private sector by allowing private entities to invest in public utilities. The fourth one was to build ‘modern corporate management’ in public enterprises. During this period, the basic principle of China’s economic reform was to keep ‘public ownership as the main stay’ of its economy and allow the existence of ‘diverse forms of ownership’ (CCCPC 2003).

As a result of the above arguments, the Chinese government launched a large-scale reform of SOEs in 1997 (see Chapters 3 to 5). Many enterprises either went bankrupt or closed as a result of the SOE reform (Zhu 2002). The SOE reform not only directly destroyed the traditional welfare functions of SOEs but also created a large number of laid-off workers (see Chapter 5). The percentage of urban workers employed by SOEs dropped from 57 per cent in 1998 to 41 per cent in 2002 (Oxford Analytica 2005). Re-employment Service Centres were set up as a transitional arrangement by offering financial assistance and training programs to laid-off SOE workers for a maximum of three years, after which their employment relationship with their SOEs would be formally terminated. Obviously, there was a separation of SOEs’ economic and welfare functions. The SOEs were no longer a miniwelfare system that met the welfare needs of their workers and family members. Instead, they were transformed to be mainly economic entities and their workers needed to seek welfare from either the market or their informal helping networks.

In order to support its SOE reform, the Chinese government introduced various welfare initiatives such as social assistance, old-age pension, medical insurance and public housing (Jiang 1997). In short, previous enterprise-based welfare benefits were replaced by insurance-oriented schemes. For example, the Decision on Establishing the Basic Medical Insurance Scheme System for Urban Employees in 1998 offered medical protection to workers from all types of enterprises. The Decision on Establishing a Uniform Basic Old Age Insurance System for Enterprise Employees in 1997 adopted a ‘social-pool-plus-individual-accounts scheme’ and extended old age protection to all types of enterprises (Chan 2008: 63). By tackling the financial needs of poor workers, three social security lines were also established, including the basic living guarantee system for laid-off workers, the unemployment insurance scheme system for unemployed workers and the minimum standard of living scheme for urban poor people (Chan 2008). Welfare reform in this period had three key features:

• Policy initiatives were originally developed to address only the needs of SOE workers; and the initiatives were later extended to benefit different types of workers.
• Social protection was primarily based on various insurance schemes that were employment-related and offered little protection to those who were either unemployed or fulfilling caring duties at home.
• Some schemes were originally proposed by local governments as regional measures and then adopted by the central government as national policies. For example, the Minimum Standard of Living Scheme was implemented in cities like Guangzhou and Shanghai and was later introduced in all urban areas in 1997.

Prior to the early 2000s, Chinese communist leaders had justified the emergence of inequality, arguing that unequal wealth distribution helped facilitate economic development and could finally benefit all social classes. They stressed that a core part of their economic strategy was to allow ‘some people and some areas to become prosperous first so that they can help others to get well-off and achieving common prosperity step by step’ (Jiang 1997). A decision passed by the Central Committee of the Communist Party of China under China’s President Zemin Jiang (1993–2003) further claimed that ‘distribution according to work is dominant and coexists with other modes of distribution’ (CCCPC 2003). Obviously, Chinese leaders had accepted the existence of inequality in a market economy, treating it as a fair reward to workers, and believing it could enhance work ethics and benefit different social classes.

However, China’s economic growth could not benefit all social groups. Its market-oriented and urban-biased social security system could offer little protection to unemployed and retired workers as well as rural residents. In particular, many laid-off workers could not obtain adequate financial support from their SOEs. For example, 24, 214 SOEs in 1996 failed to pay wages and pensions to more than 3.5 million workers (Chen 2000). Nearly one third of laid-off workers from small SOEs and about 8 per cent from large SOEs in 1997 did not receive unemployment assistance (Cai 2002).

Many people were also unable to access basic health care. According to a national health survey (Ministry of Health 2004) with a sample of 57, 000 households, 57 per cent of patients in urban areas and 45.8 per cent in the countryside did not seek medical consultation. Moreover, among those who rejected hospitalisation, 70 per cent claimed financial difficulties as the main reason in their decision (Ministry of Health 2004). In short, many patients in China were too poor to receive medical treatment (see Chapter 6).

In addition, the income gap between rich and poor people had widened following China’s economic reform. In 2003, the annual income of urban residents was three times more than that of rural residents. Also, more than 30 million peasants were living below the national poverty line with an annual income of less than ¥625. Because of urbanization and illegal land seizures from government officials and property developers, more than 40 million peasants lost their farmland but received little compensation (Liu 2006). The relationship between government and peasants became extremely strained. In 2000, the number of complaints lodged by peasants surpassed those of urban residents. Many complaints were related to land acquisitions, and the meagre compensation received, in particular (Liu 2006; see Chapter 9).

The above mentioned problems forced the Chinese Community Party to rethink its economic and welfare policies. As a result, two new ideologies were proposed during the administration of China’s Chairman Jintao Hu (2003–2013) and Premier Jiabao Wen (2003–2013). The first was to build ‘a harmonious socialist society’ and the second was to formulate and apply the ‘Scientific Outlook on Development’ (Hu 2007). As Hu emphasized, the ‘Outlook on Development takes development as its essence, putting people first as its core, comprehensive, balanced and sustainable development as its basic requirement, and overall consideration as its fundamental approach’. Hu’s approach to social development was to ‘encapsulate a more balanced and sustainable approach to growth and an emphasis on improving people’s lives, rather than focusing solely on economic growth targets’ (The Financial Times 2012). Obviously, China had adjusted its social policy by paying more attention to tackling poverty and inequalities. Influenced by the new welfare approach, the Chinese leaders an...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Notes on contributors
• Preface
• List of abbreviations
• PART 1 Policy development and policy making in China
• PART 2 Key policy areas
• PART 3 Special policy issues
• Index