The problems in China’s pension system are widely known, but very difficult to solve. The central adjustment system for the basic pension funds for enterprise employees was established on July 1 last year and the system’s annual budget was recently made public. This is a step in the right direction. However, in order to thoroughly resolve the crisis in the pension system, national coordination is imperative. It is an inevitable requirement for the rational allocation of labor resources in a market economy, a yardstick by which the state’s ability to govern is measured, and is also inseparable from citizens’ freedom of movement and their right to freedom of employment.

The central adjustment system is intended to balance the surplus of pension funds between provinces. According to the budget, there are seven, economically-developed contributing provinces, such as Guangdong, and more than 20 provinces, such as Liaoning, are beneficiaries. Beijing and Guangdong are the largest contributors, and the net contribution of these provinces is roughly equal to the net disbursement of the five largest beneficiary provinces (Liaoning, Heilongjiang, Sichuan, Jilin, and Hebei). The large regional gap shows that the “local fragmentation” of pension funds cannot be ignored. On one hand, the provinces whose pensions are not covered are increasing and the gap continues to expand. Heilongjiang province for example has formed huge deficits. On the other hand, some provinces have huge balances and low utilization efficiency. These extremes are an inevitable result of the current pension system, which must be solved through the hands of the system. The central adjustment system is a transitional strategy that has taken into consideration the fact that a unified national plan is difficult to achieve overnight. Obviously, however, the transitional period should not last too long.

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