WB Report Looks at China's Rural Elderly

Many countries face policy challenges related to the well-being of their aging populations, and China is no different. What distinguishes it is that rapid population aging is occurring in society at a significantly lower income level than in OECD or East Asian countries. How the country manages the aging of its population will be one of the major challenges it faces in coming decades, the success of which will have implications for not only China but also the whole world, says a new World Bank report released recently.

The report, entitled Elderly and Old Age Support in Rural China: Challenges and Prospects, looks at the well-being of rural elderly people, a substantial and growing share of China's elderly population and one that faces particular problems. It first provides detailed empirical analysis of the welfare and living conditions of the rural elderly since the early 1990s in the context of large-scale rural-to-urban migration. It then goes on to explore the evolution of the rural pension system in China over the past two decades and to raise issues on that system's current implementation and future directions.

"Several findings of the report have implications well beyond pension policy," said Klaus Rohland, World Bank Country Director for China. "First, aging is going to be faster in rural than urban areas, with the rural old-age dependency ratio rising considerably by 2030 and the gap with urban areas widening. And rural elderly people have been significantly worse off compared with both urban elderly people and younger rural people, even though they work longer and save a substantial share of income across their life cycle."

"Aging is becoming far more pronounced in rural than in urban areas, due to the demographic transition and continued movement of young adults into cities," said Dewen Wang, Social Protection Economist of the Bank and a co-author. "The gap in old-age dependency ratios between rural and urban areas is expected to widen from 4.5 percent in 2008 to over 13 percent by 2030 when the old-age dependency ratio will reach over one third in rural areas and 21 percent in urban areas".

"The mass rural-to-urban migration that has happened in China since the 1990s is changing the context of family support to rural elderly people," said John Giles, World Bank's Senior Labor Economist and lead author of the report. "This change can be seen in the rapid shift in living arrangements in rural areas, where co-residence of rural elderly with their adult children fell from 70 percent in 1991 to 40 percent by 2006. Remittances from migrant adult children have positive effects on elderly rural incomes, but it is burdensome for the rural elderly to continue working into old age and to care for their 'left behind' grandchildren. And current extended family structures will place increasing strains on adult children to provide support in the absence of sustained government support."

The report finds that the rural elderly are poorer and more vulnerable than the urban elderly. Low-income rural elderly face the risk that transfers from adult children may not be sufficient to keep them out of poverty. Though saving rates are high across all ages in China and remain positive even in old age, savings are also strongly correlated with household income, but the rural poor are not saving on average.

The report reviews the initiatives undertaken by the Chinese government to strengthen public support to rural elderly households. A national Rural Pension Pilot Scheme was introduced in late 2009 and has been rapidly expanded, with full geographic coverage planned by end-2012. It has been complemented by expansion of the national rural social assistance program (dibao), which now covers more than 50 million people and the New Cooperative Medical Scheme. These programs have been of particular value for older people in rural areas.

"China's rural pension reform is a welcome development which will also face challenges as it consolidates," said Philip O'Keefe, the Bank’s Human Development Sector Coordinator for China and also a co-author. “These include the regulation and oversight of funded portions of rural pensions, the need to incentivize sustained participation of younger rural workers, and the relatively low retirement ages that do not yet reflect the changing rural demographics of rural areas. Other issues include the relationship between the new pension system and existing elderly welfare programs, the investment rules for pension contributions which are likely to generate low returns, the weak capacity to manage the new scheme at the local level, and portability between the rural pension system and the urban systems as urbanization deepens." The report outlines proposals for addressing some of these risks in order to further strengthen what is a much-needed and innovatively designed scheme.

The report is a collaborative effort between the Institute of Population and Labor Economics of the Chinese Academy of Social Sciences and the World Bank and benefited from insights from the Ministry of Human Resources and Social Security and the Ministry of Finance.