Real pen­sion hike needed

China Daily (Canada) - - COMMENT -

THE LAT­EST IN­CREASE IN PEN­SION WILL BE OF greater help than it seems for the coun­try’s about 74 mil­lion re­tirees from en­ter­prises thanks to the milder-thanex­pected in­fla­tion in 2013.

How­ever, to bet­ter pre­pare for the rapid ag­ing so­ci­ety and al­low more real pen­sion growth, Chi­nese pol­i­cy­mak­ers have to keep price hike un­der con­trol.

On Wed­nes­day, the gov­ern­ment raised the ba­sic pen­sion of en­ter­prise re­tirees by 10 per­cent start­ing Jan 1, 2014.

The in­crease in en­ter­prise re­tirees’ pen­sion for the 10th con­sec­u­tive year is a wel­come move es­pe­cially be­cause the world’s sec­ond largest econ­omy is likely to reg­is­ter the slow­est growth in a decade.

It is one thing to in­crease pen­sion when dou­ble-digit growth is the norm and quite another when long-term growth po­ten­tial is shift­ing into a lower gear.

Given that the num­ber of re­tirees is ex­pected to grow in the com­ing decades, ev­ery in­crease in pen­sion will re­quire larger funds to sup­port.

For­tu­nately, with con­sumer in­fla­tion ris­ing by only 2.3 per­cent in 2013, well be­low the 3.5 per­cent tar­get set by the gov­ern­ment, pol­i­cy­mak­ers have been able to raise the pen­sion for the tens of mil­lions of re­tirees so that they too can share the fruits of China’s eco­nomic growth.

While the gov­ern­ment’s ef­forts to keep im­prov­ing the lot of the re­tirees is to be ap­plauded, pol­i­cy­mak­ers should ex­er­cise cau­tion while re­spond­ing to cries to loosen the mone­tary pol­icy to stim­u­late growth.

Just be­cause the low in­fla­tion rate is not a ma­jor con­cern for the mo­ment, some peo­ple ar­gue that a neu­tral mone­tary pol­icy, if not an overtly loose one, would be more fa­vor­able to eco­nomic growth than the rel­a­tively tight one we have now.

That may be true for some en­ter­prises and fi­nan­cial in­sti­tu­tions which rely heav­ily on cheap credit, but it def­i­nitely would not be in the long-term in­ter­est of the na­tional econ­omy.

Since the lower-than-pre­dicted in­fla­tion was largely be­cause of lower in­crease in food prices last year, it ben­e­fited pen­sion­ers as well as other low-in­come groups who spend a com­par­a­tively large part of their in­come on food.

There­fore, there is no rea­son why pol­i­cy­mak­ers should al­low the hard-won pen­sion growth to be eas­ily eroded by run­away price hikes that ex­ces­sive mone­tary sup­ply will en­tail.

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