Implementing a simple pension system could increase the low levels of consumption within China. The certainty of a pension would both reduce saving rates while freeing up additional income for consumption purposes.
This claim is made by researchers at the Europe China Institute at Nyenrode Business University in the China Structural Development Monitor (CSDM). The CSDM is a quarterly survey produced on behalf of pension administrator and asset manager Mn Services. The recurring survey focuses on the middle class in China.
The CSDM indicates that the Chinese middle class understands the need for adjustment in the social security system. However, it is concerned about the possible consequences at the individual level. The research group expects the social security system (including all the appropriate choices) to have a substantial negative impact on personal income. As a result, the governments policy to reduce saving rates and increase consumer spending will fail in the short-term. The Chinese middle class feels the need to increase its saving rates to counteract the expected uncertainty.
“The money supply in circulation resulting from the introduction of a simple pension system and a reduction in saving rates has a positive impact on the Chinese economy. The pension system should be deployed and used primarily in rural areas. Indeed, these areas contain the largest population groups”, said Haico Ebbers, chairman of the Europe China Institute at Nyenrode Business University.
Mr. Hagendijk Ruud, CEO of Mn Services and member of the Executive Advisory Board of the Europe China Institute continues: “The development of a simple pension system in China requires a considerable effort. China is looking for a transparent system that proves useful to every region and citizen therein. Leveraging our Dutch experience, we are helping Chinese policymakers in making workable decisions”.
D.C.