Many legal experts believe that China currently desperately needs a regulated social security fund system, especially now as citizens cope with a domestic economy that is experiencing dramatic transformation. The consecutively rising Consumer Price Index (CPI) along with huge costs for housing and healthcare has generated great anxiety over welfare benefits.

Currently, the nation's top legislature is pondering a draft law that would legalize people's rights to enjoy a regulated social security fund system. "The fiscal revenue garnered in 2007, estimated at 5 trillion yuan (US$689 billion), is capable of expanding the social pension fund nationwide," said Zheng Gongcheng, a member of the Standing Committee of the National People's Congress and also a member of Committee for Internal and Judicial Affairs. "Yet vast income gaps in different parts of the country and the incomplete social security fund system hinders the country from providing welfare to everybody overnight."

The domestic social security system has experienced many changes since China began initial stages of opening-up and reform in the 1980s. At that time, hordes of employees from state-owned companies raced to private business sectors hoping to seek personal gold mines. Bankruptcies and business failures often occurred in both private and non-private sectors during the nascent economic restructuring and the previous pension system that functioned in the non-market economy was no longer able to guarantee pension security for everyone. In early 1990s, hundreds of social pension programs cropped up in different parts of the country. According to Zheng, some local governments considered these programs as a way to generate a competitive edge to attract overseas investors at the cost of citizens' welfare benefits. In 2000, social security premiums and taxes co-existed in the country, which, according to Zheng, pose grave threats to the accountability of the system.

"The conflicting duties among the various administrations harm the integration and reasonable development of the social security fund system," Zheng stated in a recent interview with Nanfeng Chuang Magazine last month. "Chaotic management inside different governmental departments has caused social pension scandals in Shanghai and Shenzhen in recent years." In June, Shanghai courts started hearing cases against officials involved in the social security fund scandal that involved 3.7 billion yuan, Xinhua reported.

To avoid further embezzlement, the country is planning to draft a law to enhance the supervision of the fund, composed of pension insurance, medical insurance, work injury insurance, unemployment insurance and maternity insurance. In line with the draft law submitted to the 31st session of the Standing Committee of the 10th National People's Congress, institutions in charge of social security issues should report their revenue, expenditures, balances and earnings on regular basis. According to a Xinhua report last month, the draft law encourages companies to organize supervisory committees composed of company representatives, trade unions and legal advisers.

According to the proposed law, employers who do not pay enough of the required social security premiums for their employees should return equal amounts of money from commercial bank accounts. If companies pay insufficient social security funds to employees, and provide no guarantees for these funds, then institutions in charge of the funds can file legal suits to seize the defaulting company's assets and auction them off for restitution purposes. The draft law would also define punishments for embezzlement and fraudulent practices.

The draft law would set up a legal framework to safeguard the country's social security fund, including system principles, insurance services and management supervisions, said Tian Chengping, minister of the Labor and Social Security Ministry. The fledgling legal framework still needs time to prove its effectiveness and experts are still spilt on issues concerning fund collection and management. Zhu Qing, director from the department of Public Finance inside Renmin University, said that the social security fund should be levied as a tax and the departments of finance, tax and audit, in addition to social security institutions, should be involved with management. "In my opinion, economic activity of any kind should be conducted by several government departments in order to control corruption," Zhu said in an interview with China Tax News last September. Zhu is also a standing director of the National Institute of International Tax Studies.

But Zheng, who is also the director of the China Social Security Studies Center inside Renmin University, opposes levying taxes for social security fund. "Public taxes contradict the privacy of personal accounts. Moreover, the balanced budget by way of taxation conflicts with the function of fund accumulation," Zheng said in his interview with Nanfeng Chuang magazine. "Taxation will also weaken the rights and duties people require to enjoy the system."

According to Zheng, as a measure to create a secure working environment, to solve the contradictions in the labor market and to uphold social equality, the central government should integrate a social security system. "Trade unions and employers can supervise their own social security departments, as long as the system remains transparent," said Zheng.

(China.org.cn by Wu Jin January 14, 2008)