China’s government, strapped for cash after years of enforcing a costly zero-Covid policy, is cutting medical benefits and planning to raise the retirement age, in deeply unpopular moves that are fueling widespread public anger.

Thousands of elderly people have been taking to the streets since January to protest big cuts to monthly medical benefit payments. They’ve gathered in four major cities across the country, demanding local officials reverse the decisions.

The changes are part of a national overhaul mainly intended to cover deficits in public medical insurance funds, according to analysts, which have been drained after paying for mass testing, mandatory quarantine and other pandemic controls over the past three years.

The demonstrations, dubbed by Chinese media as a “gray hair movement,” are another rare rebuke for authorities after widespread protests gripped the country in November against Covid lockdowns.

The anger could further undermine trust in the Communist Party already damaged by Covid lockdowns, banking scandals and a real estate crisis.

“Chinese pensioners view these latest reforms as yet another broken party promise, one that could profoundly impact their quality of life in the face of China’s looming demographic crisis,” said Craig Singleton, senior fellow at the Washington-based Foundation for Defense of Democracies.

Chinese officials appear to be worried that these protests could spread further.

Censors removed hashtags for “Wuhan health insurance” from Weibo’s hot topics section after the demonstrations began in January. They also censored photos and videos of the protests from social media.

Fueling the anger is a new drive by Beijing to push back the retirement age for all workers.

Dire finances

For nearly three years, local governments bore the brunt of enforcing the now-defunct pandemic controls, resulting in soaring expenditures even as their income from revenue sources such as land sales slumped.

The concerns were sparked after Guangdong province and the city of Dalian announced in 2022 that they would tap public medical insurance funds to pay for mass Covid testing.

The issue was exacerbated when, shortly after, the National Healthcare Security Administration (NHSA) said the money shouldn’t be used in this way and that local governments should fund the testing with their own budgets.

State media reported at the time that some other regions had already spent public money on mass testing. The reports triggered fears about the future sustainability of the already underfunded health insurance system.

It’s unclear exactly how much China has spent in total on maintaining its ultra-strict zero-Covid policy, or where that money came from. But at least 17 of the country’s 31 provinces have revealed the enormous sums they’ve spent on fighting the pandemic.

Guangdong, the richest province in China, was the biggest spender. It spent 711 billion yuan ($10.3 billion) in 2022 on measures such as vaccination, testing and emergency benefits for medical workers, an increase of more than 50% from the year before.

Zhejiang and Beijing spent 43.5 billion yuan and 30 billion yuan respectively.

“Local governments are running short of money, or in some cases, out of money,” said George Magnus, an associate at the China Centre at Oxford University.

“Funding zero-Covid was the most proximate cause for the crunch, but local finances are deteriorating for other reasons too, notably the rising burden of expenses associated with age-related spending.”

Interest costs on trillions of dollars of debt and falling revenues from land sales have also worsened government finances, he said.

China’s outstanding government debts might have surpassed 123 trillion yuan ($18 trillion) last year, of which nearly $10 trillion is so-called “hidden debt,” according to Chinese analysts. The debt problem has gotten so extreme that some cities are unable to provide basic services, such as heating homes.

Covering the shortfall

China’s health insurance scheme is a key part of its limited social safety net. It covers a portion of medical costs for current and retired workers in urban areas.

It consists of individual accounts, funded by mandatory payments from workers and their employers, and a pool of funds made up of employer contributions. The personal account is used to pay for medicines and outpatient costs, while the collective account is used to pay for hospital visits.

Retirees don’t need to contribute and receive a monthly payment into their personal accounts from the collective pool.

After the reforms, which were introduced starting in January, payments to all personal accounts were reduced.

The elderly, who tend to have more medical needs, are more sensitive to the changes. In the central city of Wuhan, retirees saw monthly cutbacks of as much as 70%.

Soon after the protests in Wuhan and the northeastern port city of Dalian, the NHSA issued a statement defending the policy, saying even though people would have less money in their personal accounts, there would be more funds flowing into the collective account as a result.

To protesters, however, it looked like local governments were dipping into their individual accounts to cover the shortfalls of the collective pool.

“The notion of robbing pensioners to pay back the party for the costs associated with compulsory Covid testing and other expensive pandemic measures was never going to sit well with the general populace,” Singleton said.

An aging society

In the longer term, the “gray hair movement” is indicative of a fundamental issue facing the Chinese government: how to care for a rapidly aging society where 400 million people, or 30% of the population, will be 60 or older by 2035.

China’s public health care system and other public services have come under increasing financial strain as the number of retirees outpaces the number of young people entering the workforce.

A leading government think tank forecast in 2019 that the state pension fund could run dry by 2035 due to a dwindling workforce.

“[The] crunch affecting health insurance is only a stone’s throw away from the larger one affecting pensions, and workers could edgily become agitated over poor pension and health care security,” Magnus said. “It’s possible protests by elderly citizens will spread.”

To address the challenge, the government is making a new push to raise the retirement age.

Li Qiang, the country’s new premier, said in March that the government would conduct rigorous studies and analysis to roll out a policy prudently “at an appropriate time.”

The news has already sparked a fierce backlash on social media, with tens of thousands of angry responses.

Leading the complaints were people close to retiring, who expressed anger over the prospect of delayed access to their pensions. Younger people argued that they would have fewer jobs because of greater competition.

“There has to be some resolution of the financial capacity of local governments to meet current, and prospective, age-related costs,” Magnus said. “Otherwise, there could be rolling crises, layoffs, and reduced provision of public goods and services which could lead to political trouble.”

From health care to public infrastructure, local governments have many bills to pay. But they are facing an acute shortfall of cash, as three years of strict pandemic controls and a real estate crash have drained their coffers.

While some regional governments may roll back the health insurance changes after witnessing the uproar, “some may have to do it no matter what, as they really run out of money and can’t find other sources of income,” said Frank Xie, a professor in business at University of South Carolina Aiken.

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