China’s pension system is in danger of running out of cash within a decade due to severe underfunding. Now it faces a new threat: Tens of millions of mostly young workers are refusing to pay into it.

On today’s Big Take Asia Podcast, host K. Oanh Ha talks to Bloomberg’s Qianwei Zhang about why workers are boycotting the system and what’s at stake for the struggling economy and the Communist Party.

Here is a lightly edited transcript of the conversation:

Gao Pengcheng (in Chinese): Hi everyone, I’m the one who wants to go viral but have yet to make it.

K. Oanh Ha: This is Gao Pengcheng. He’s 22, just graduated from college and lives in China’s southern city of Shenzhen. Gao wants to become a full-time social media influencer. He posts video blogs of his life, and does freelance work on the side, too. He makes about a thousand dollars a month, a moderate income in Shenzhen, but Gao still appreciates the finer things in life. Here he is on Xiaohongshu, China’s Instagram, saying that he’s treating himself to a luxurious first class flight to South Korea for a quick getaway.

Gao (in Chinese): Just treating myself to a first-class flight … going to eat the food now.

Ha: But to afford the occasional splurge, Gao decided to scrap one major expense from his budget, his pension payments. It’s about $200, and he told Bloomberg that’s a fifth of his monthly income. Money that Gao says he’d rather spend enjoying himself.

Gao (in Chinese): It’s not a small amount. It adds up to about 20,000 yuan a year. Why don’t I just spend that money on traveling or shopping?

Ha: Gao says most of his friends don’t pay into the pension fund either if their line of work, like freelancing, makes the payments voluntary. And across China, there are millions like Gao who are boycotting the pension plan.

Qianwei Zhang: Based on Bloomberg’s calculations of data from a Chinese think tank, tens of millions of China’s young workers have suspended contribution to China’s pension plans, and that puts additional pressure on a system that’s already wobbly.

Ha: Qianwei Zhang is a Bloomberg editor based in Hong Kong.

Zhang: China’s basic pension fund is at the risk of drying up by 2035. And if the government is not able to provide the most basic social security, that could risk undermining the public’s faith in the Communist Party and its social contract with the people. And it could be a ticking time bomb posing a threat to China’s social stability.

Ha: Welcome to the Big Take Asia from Bloomberg News. I’m Oanh Ha. Every week, we take you inside some of the world’s biggest and most powerful economies, and the markets, tycoons and businesses that drive this ever-shifting region. Today on the show: Why is China’s pension fund in danger of drying up? What are the risks to the country’s already struggling economy and the credibility of the Communist Party?

Ha: Like most things in China, the size of the Chinese pension system is staggering. The country has the world’s largest social security system and Bloomberg’s Qianwei Zhang says, the easiest way to think about the different systems set up for retirement in China is to break it down to three pillars.

Zhang: The first one is the government funded basic pension system. This is what we talk about when we refer to the pension system. It currently covers 1.1 billion people, and that’s around 80% of the entire population.

Ha: If you work in China with a formal job, you’re required by law to contribute to this basic pension plan.

Zhang: So if I work for a company inside mainland China, every month I’m supposed to pay about 8% of my income to the pension system. And in the same token, my employer is supposed to pay 16% of my income to the pension fund. This is a largely mandatory plan, but it also covers freelancers and gig workers like Gao, who don’t have a formal job and can opt out if they choose. So their contribution is entirely voluntary. And all that money goes to the basic pension system, and it’s going to pay for the present-day retirees.

Ha: Ok, so I got that. What’s the second pillar?

Zhang: The second pillar is called the voluntary corporate pension and it’s similar to the 401(k) plan in the US. It only covers 31 million business workers and with a little over 3 trillion yuan in assets.

Ha: And what is the difference between the two pension systems?

Zhang: So the main difference is the voluntary corporate pension is set up by companies for their employees and by the time the employees retire, they will mostly be able to withdraw every single penny that the company put in there for them, but the basic pension system, you don’t really know how much money you will be withdrawing by the time you retire. And there’s no guarantee you will be getting every penny out of everything that you put in.

Ha: Workers in China used to enjoy social welfare that covered them from cradle to grave, guaranteed by state-owned enterprises. But that policy was upended after China’s economy opened up in the 70s. And for decades, most people rely on the basic pension plan, the first and the largest pillar, while only a small number of companies offer voluntary corporate pension plans.

Zhang: I think in the past time, when times are good, when China wasn’t in such a dire, demographic situation, there’s hope that government would be able to give you the money back. And on top of that, for a really long time, the basic pension system is people’s only option.

Ha: And Qianwei, what about the last pillar of the pension system? What’s that about?

Zhang: So the third pillar is still very young. It’s called the voluntary individual pension system. The government only started testing it in 2022, and it’s similar to the individual retirement accounts in the US. So you can contribute to tax-sheltered savings fund, and then you can pick whatever investment that you want to put the money in. So far, only a little over 60 million people signed up, but less than a third people have actually put in any deposit.

Ha: OK, so we’ve got the mandatory government pension plan, voluntary corporate pension plan, and voluntary individual pension plan – how are these three pensions doing right now?

Zhang: So all of the three pillars of China’s pension fund are underfunded. According to the Chinese Academy of Social Sciences, the savings in the biggest pillar, the Chinese basic pension system, will peak at seven trillion yuan in 2027, before shrinking sharply. And by 2035, the basic pension system is at the risk of drying up even if the government steps in.

Ha: One of the main reasons all of these pension plans are underfunded is because of China’s falling population. For decades, China imposed a strict one-child policy that only allowed each couple to have one kid.

Zhang: Now after decades of successful family planning policy, China has created this unique “4-2-1 family structure,” which means that four grandparents will be taking care of one precious child. But if you reverse the structure, we’re looking at an entire generation of people having to take care of two parents and four grandparents.

Ha: That’s a lot of pressure on the younger generation who now make up the workforce. They’re expected to help provide for the growing number of retirees, but some people, like Gao Pengcheng, are opting out of the pension system altogether.

Zhang: And on top of that, many of us are delaying marriage, delaying having children, and a lot of people also say they don’t want to have children at all, and that’s going to be a problem for the future demographics. We’re looking at a rapidly shrinking population, which means not enough labor will be entering the job market and putting money into the pension fund.

Ha: According to government data, more than 20 million workers will retire each year over the next decade in China. And by 2035, the number of Chinese citizens over 60 is forecast to top 400 million; that’s more than the population of the U.S. and Canada combined.

Zhang: This is simple math. On one hand, more old people will be retiring, and on the other hand, there will be less people being born in China. The population has been shrinking since 2022 and the United Nations projects that China’s population could shrink to half of its current size by the end of the century.

Ha: Now, Qianwei, problems like aging populations are faced by many developed nations in Europe and the Americas, even the US social security trust fund faces insolvency by 2035. So how is China’s pension fund situation any different?

Zhang: So on one hand, China has way more old people than the U.S. and Canada, the ratio of old to working age people in China is forecast to soar. And on the other hand, China’s pension system is mostly dependent on the basic pension fund, whereas in the U.S. and Canada, their pension system is more diverse and more people are enrolled in the second pillar and third pillar.

Ha: After the break, what the Chinese government is doing to prevent the world’s largest social security network from running dry and what could happen if those efforts fail.

Ha: China’s rapidly aging population is putting a lot of pressure on the country’s policymakers. The government is throwing everything at the wall to prevent the pension fund from running out. In 2016, Beijing reversed the one-child policy after more than 35 years, and it’s been stepping up efforts to boost the birth rate ever since. But that’s done little to slow down the problem. The population remains in decline and most parents can’t afford to have multiple children. And last September …

Zhang: Beijing took a major step last September to shore up the system by delaying retirement age for up to five years. And the shift is the first of its kind in nearly five decades. The policy went into effect on January 1, 2025.

Ha: The new policy upped the retirement age for men to 63 from 60 and for women to 55 years old from 50. The policy shift has triggered an outpouring of anger on social media, with many complaining about the sluggish job market. Gao, the blogger we heard earlier, also says the pension plan isn’t sustainable.

Zhang: So looking at postponing retirement age. Gao is very upset and he’s asking questions like why do I have to work for so much longer than my parents’ generation and how much money do I put into the system? The big problem for Gao is how much money is he actually going to get by the time he retires. And Gao is not the only one who thinks this way. According to a Chinese Academy of Social Sciences report, about a fifth of urban employees did not contribute to the system in recent years.

Ha: Those were mostly migrant workers. Thirty-eight million people stopped payment in 2013 alone — that also includes employees of businesses that suspended contributions due to financial difficulties. Qianwei, what’s at stake to China’s economy and its government if the pension fund does run dry?

Zhang: If the government is not able to provide even the most basic social security, it’s going to undermine the public’s faith in the system. And it can create more opportunities for social unrest. And what’s worse is that young people are going to lose hope of the government, and they’re not going to be motivated to work hard and fight for the economic growth of the country.

Ha: Back in Shenzhen, Gao says he doesn’t see the point of paying into the pension fund with so much uncertainty.

Gao: My parents could have retired last year or the year before, but now, because of the policy change they have to work longer, and pay more into the pension fund. And we don’t even know if they can get that money back. To put it bluntly that’s if they can live long enough to see that day even come. China has 1.3 billion people. If everyone retires at a later age, the contribution all together is huge. I understand that the country needs this to help the economy, and this might be good policy for the nation, but it’s not good policy for regular people like us.

 

 

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