This small but substantial volume is a welcome contribution to the debate about rural pensions in China. Its first four chapters empirically analyze the well-being of the Chinese rural elderly amidst rapid population aging and rural-urban migration. The last two chapters review China's rural pension system since the middle 1980s and provide suggestions for improvement. This book would appeal to a wide audience, including readers unfamiliar with demographic changes and poverty in China as well as pension experts interested in the country's pension reform.
The first four chapters make a strong case for increased old age support in rural China. Although the elderly dependency ratio is increasing in China as a whole, the authors point out that the aging burden is more acute in the countryside due to massive migration of young laborers to urban areas (Chapter 1). The left-behind rural elderly are poorer and more vulnerable to poverty than their urban counterparts and those from younger generations (Chapter 2). As Chapter 3 maintains, the rural elderly's main sources of income are their own labor income and family support while their urban counterparts are largely supported by pensions and private transfer. The authors advocate that social support will encourage retirement of the rural elderly. They also assure that ‘a social welfare benefit that raises incomes of the elderly will not crowd out private transfers’ (p. 64) because the inverse relationship between private transfer and household pre-transfer income flattens over time and along the income distribution. When analyzing household savings in Chapter 4, the authors argue that social insurance can help lower precautionary savings and boost consumption among rural households.
These four chapters provide an overarching presentation of China's demographic transition and economic welfare of the rural elderly with a nice balance between quantitative evidence and qualitative arguments. Tables and graphs are frequently referred to throughout the text without overwhelming non-savvy readers with technical details. However, a few things undermine this section's persuasiveness.
First, the assurance that social support will not crowd out family support is too strong a claim. The flattening relationship indeed indicates diminishing elasticity of private transfer with respect to pre-transfer income when income rises. However, since the slope remains negative even at the upper end of the income distribution, the crowding-out effect remains positive. More critically, that inverse relationship is shown to be considerably stronger among the poor, reflecting larger crowding-out among those who need social support the most. The authors also missed a chance to quantify the effect by not explaining what the magnitude of the private transfer derivatives with respect to pre-transfer income in the book really mean. It would also be more convincing if the authors showed whether and how much the existing pension benefits crowd out family support in urban areas.
Second, Chapter 4 does not distinguish between whether the savings of households with elderly members is to finance future needs of younger household members, such as education and housing, or it is to insure elderly members against adverse shocks. If the chapter dissected the sample into extensive households and households consisting of only elderly members, it could have provided further insights into the saving decisions of the elderly themselves and how changes in savings can influence their welfare.
Third, the purposive analysis of elderly poverty is undermined by confusing levels of analysis. Chapter 2 mostly uses household data and categorizes households based on age of the oldest member, yet the arguments and conclusion are made for the elderly at the individual level. The authors appear to use similar but not identical terms interchangeably, adding to the confusion. Examples include ‘age of oldest household member’ and ‘age of household head’, ‘elderly poverty’ and ‘poor elderly household’, and ‘households with elderly’ and ‘elderly households’.
The most stimulating part of the book, nonetheless, is the last two chapters. Chapter 5 chronologically and critically reviews China's experiments with rural pensions since 1986. The review comprehensively covers pension schemes' design, eligibility, matching contribution, fund management, regulation, sustainability, and portability, and incentives of both private and public stakeholders. Chapter 6 further analyzes the current national rural pilot scheme and provides recommendations for its expansion. The authors' major suggestions include the evolution of the basic rural scheme into a social pension, the inclusion of an ‘appropriate’ matching defined contribution, and a guaranteed rate of return.
The strength of this section is that it is highly insightful and relevant to China's demographics (rapid aging and massive migration) and the decentralized management and funding of China's pension system. For example, the authors pay special attention to the issue of portability between urban and rural schemes, the balance in funding responsibility between central and local governments, and the low retirement age.
This reader, however, is concerned about how operational are the recommended options. A guaranteed rate of return as high as national GDP growth, a higher matching contribution, and subsidies for vulnerable groups would all require a larger budget; yet the authors neglect the fiscal feasibility of these suggestions. Moreover, given the current limited management capacity, implementing different investment rules for different age cohorts and moving fund management from county level to the National Social Security Fund will be both time- and capacity-demanding. These suggestions, though relevant and sensible, are still at the conceptual level, and as the authors fairly admit, they will need detailed elaboration to be practical.
Another under-expanded point in the book is regulation, which is identified as a major weakness in China's pension system. Except one example of unauthorized investments in Chapter 5, little was discussed about what regulation problems exist and how to tackle them.
These issues aside, this is still a well-written, informative, and stimulating book. It provides a relatively deep analysis of elderly poverty in China and makes a strong case for increased public support to the rural elderly. It also contributes insightful review and noteworthy suggestions to the policy debate about rural pension reform in China. I would recommend the book to anyone interested in Chinese elderly's wellbeing or China's rural pension system.
