Since the implementation of market-oriented reform in the 1980s, the traditional socialist work unit and non-contributory “iron rice bowl” social-protection system has been dismantled. For decades, China has gradually built up its social-protection framework, relying largely on a two-pronged approach based on contributory employment-based social insurance and means-tested assistance. The incorporation of asset-building and defined contribution individual accounts in the social-insurance programs, notably in pension and healthcare, is considered unprecedented and innovative policy.
Through heavy government subsidies linked to a flat defined benefit, the introduction of pension programs for urban and rural residents (those without formal employment contracts) in recent years has extended social-insurance coverage significantly. Through “family-binding” provisions, retirees can immediately receive benefits if their adult children enroll in the programs. “China’s introduction of the National Rural Pension Scheme and Urban Resident Pension Scheme has arguably been one of the world’s most ambitious voluntary pension saving and minimum elderly assistance schemes in a low- or middle-income country,” World Bank economists commented in 2012. “The sheer scale and speed of coverage expansion has already exceeded the initial targets of the Chinese authorities”. The two schemes have been integrated since 2015.
Critics of this social-protection framework point to the need for integration of different schemes, lack of portability, inadequate benefits, and poor financial sustainability as the shortcomings. Noteworthy is the fact that the unemployment insurance program has relatively low coverage. The official unemployment rate in China has been moderate. In 2019, the registered unemployment rate in urban areas was only 3.62 percent, but surveys put the rate at 5.2 percent.
As for poverty relief, the extensive and targeted alleviation programs in poor regions and the means-tested social-assistance program (Dibao) have achieved impressive results that have been recognized worldwide. The number of rural residents living in extreme poverty (below per capita annual income of RMB2,300 or US$352) declined from almost 100 million people in 2012 to only 5.5 million, or 0.3 percent of the rural population in 2019. The residual Dibao program, which has stringent criteria, covered a total of 43.6 million people in 2019, with expenditures accounting for only 0.27 percent of GDP.
The 2015 “Decision on Winning the Fight Against Poverty” issued by the State Council pledged to eliminate absolute poverty in China by 2020. The core strategy is a multifaceted approach based on industrial development, relocation, compensation, education, and social security. Over the years, China has tried to establish an information system to register every poverty-stricken household and individual and keep track of their improvements. The “six targets” of the poverty-alleviation strategy include objects, projects, use of funds, measures for each household, village-based poverty relief cadres, and poverty-alleviation results. The emphasis on precise targeting has been recognized as the key factor contributing to the success in poverty reduction.
As a result of these efforts, China is likely to be the first country to achieve the poverty alleviation goal set in the United Nations 2030 Agenda for Sustainable Development. China’s strategy has become a showpiece or learning model for other developing countries. The pertinent question is: If China is so satisfied and proud of its existing integrated and targeted approach to poverty alleviation, would it pursue a new policy such as a UBI which might represent a significant shift away from its existing poverty- alleviation principles and methods?
To be sure, all innovative approaches might have to be integrated with or introduced as a supplement to the existing framework. Culturally, the Confucian work ethic cherishes individual hard work and family responsibility. The general public would likely not support a cash-transfer program that benefits everyone including people not in need. Apart from the financial implications, the Chinese government would have reservations about an unconditional and right-based program, as Chinese society is so diversified and segmented with profound differences in socio-economic development between regions, rural-urban areas, and occupations. Because of this diversity and the existing inequalities, the government would find the concept of UBI unappealing.
A laboratory for a UBI experiment?
China’s economic and social reform strategy has been incremental and cautious. Rapid social reforms may trigger instability. In the policymaking process, Beijing typically comes up with an idea of a reform policy and would then issue “opinions” to encourage local governments to put the concept into practice. Only after learning from the best practices identified through numerous pilot projects and trials would the government issue policy directives for local governments to follow.
As a rule, for those local governments lacking financial capacity, Beijing would offer subsidies. The central-local government dynamics may take decades of adjustment and adaptation before a new social policy or program could take shape nationally. In most cases, these policy directives are often not compulsory and are to be implemented at the discretion of the local governments according to the local context. Without Beijing’s encouragement and financial support, local governments in poverty-stricken areas would find it difficult to adopt a UBI.
China, however, might agree to launch pilot projects for social programs in collaboration with international organizations. Since the 1980s, the World Bank has played a catalytic role in China’s technical, institutional and conceptual innovation for development. One shining example of such cooperation is the assistance that the World Bank provided in the formulation of the hybrid pension system. In supporting pilot projects on pension reform in China, the World Bank offered financial loans, technical advice, staff training and information management technology.
Having recently published a report that explored implementation frameworks for a UBI, the World Bank might well seek to convince the Chinese government to initiate a pilot project to find out how the concept can be adapted to the domestic situation in complement to existing poverty-alleviation and social-assistance programs. China – or at least parts of the country – could become a groundbreaking laboratory for discovering how a UBI scheme might work in practice on a large scale.