Em­ploy­ers squeezed by so­cial se­cu­rity

China Daily (Canada) - - CHINA - By ZHENG YANGPENG zhengyang­peng@ chi­nadaily.com.cn

Eas­ing com­pa­nies’ so­cial se­cu­rity pay­ment obli­ga­tions would re­duce busi­ness costs and en­cour­age hir­ing, ac­cord­ing to ex­perts who have stud­ied the is­sue.

The an­nual Cen­tral Eco­nomic Work Con­fer­ence, a tone-set­ting meet­ing for the 2016 na­tional eco­nomic agenda, called for re­duc­ing com­pa­nies’ so­cial se­cu­rity ex­penses and for study­ing ways to stream­line other ad­min­is­tra­tive pay­ments, ac­cord­ing to a state­ment is­sued after­ward.

For Chi­nese econ­o­mists, the state­ment is an over­due ac­knowl­edg­ment of a prob­lem busi­ness­peo­ple have com­plained about for years: the high costs of run­ning a busi­ness. Low­er­ing those costs is a cen­tral piece of China’s sup­ply­side re­form.

Liang Hong, chief econ­o­mist at China In­ter­na­tional Cap­i­tal Corp, who has fol­lowed the is­sue closely, said that un­likeWestern coun­tries, taxes in China are just part of the cor­po­rate bur­den, which also in­cludes var­i­ous ad­min­is­tra­tive fees and so­cial in­sur­ance obli­ga­tions.

There is lots of room to al­le­vi­ate the bur­den on com­pa­nies by cut­ting pay­ments, she said.

Chi­nese em­ploy­ers must dis­burse 20 per­cent of an em­ployee’s monthly pay­roll to the pen­sion fund, com­pared with the global av­er­age of a lit­tle over 10 per­cent of the com­bined con­tri­bu­tion of em­ploy­ers and em­ploy­ees.

Adding other funds, to­tal pay­ments by em­ploy­ers amount to 44 per­cent of an em­ployee’s monthly pay­roll.

In 2014, to­tal so­cial se­cu­rity pay­ments grew 13 per­cent to 3.98 tril­lion yuan ($605 bil­lion). By com­par­i­son, the com­bined prof­its of China’s in­dus­trial firms was 6.8 tril­lion yuan.

High so­cial in­sur­ance fees have de­terred com­pa­nies’ hir­ing or forced them to de­vise ways to cir­cum­vent the levies— es­pe­cially dur­ing eco­nomic down­turns.

Michael Lan,


of Chi­nahrs, a na­tional hu­man re­sourcesser­vice­com­pany, said acom­mon­prac­tice is tomake a cash pay­out to em­ploy­ees be­fore the monthly salary dis­burse­ment. Em­ploy­ers might also pay part of the wage while hav­ing re­main­ing wages paid by­hu­man­re­sourcescom­pa­nies — to­keepthe­p­ay­roll­basearti­fi­cially low on the books.

“Un­like the United States, Chi­nese re­tirees’ pen­sions are not di­rectly linked with their pen­sion pay­ments be­fore re­tire­ment, which re­duces em­ploy­ees in­cen­tives to par­tic­i­pate. Em­ploy­ers also feel over­bur­dened by the obli­ga­tion,” he said. China has al­ready eased some obli­ga­tions. How­ever, an­a­lysts said such moves are patch­work: Un­less pen­sion fund obli­ga­tions are low­ered, they will not change much be­causepen­sion­pay­ment­takes up about 70 per­cent of to­tal pay­ments.

If the pen­sion pay­ment ra­tio were to be sub­stan­tially cut, say from 20 per­cent to 10 per­cent, the prob­lem would shift to­how tomake­upth­elosses, es­pe­cially in face of an ag­ing so­ci­ety.

Econ­o­mists have long sug­gested two ways to plug the hole: rais­ing the re­tire­ment age and di­vert­ing more prof­its and eq­ui­ties of State-owned en­ter­prises. Both have been ac­cepted by the govern­ment and listed as a re­form di­rec­tion. But nei­ther is easy job.

“Rais­ing the re­tire­ment age inevitably faces pub­lic re­sis­tance; the other en­coun­ters re­sis­tance from SOEs. A key re­form blue­print urged the di­ver­sion of 30 per­cent of an SOE’s div­i­dend to the pub­lic cof­fers but did not spec­i­fy­how much equity should be di­verted,” Liang said. “You can see the dif­fi­cul­ties.”

A re­port by China In­ter­na­tional es­ti­mated that if SOEs con­verted 10 per­cent of their eq­ui­ties to pen­sion funds ev­ery five years, the govern­ment could af­ford to re­duce the cor­po­rate con­tri­bu­tion ra­tio to the funds by 5 per­cent­age points.

“If the obli­ga­tions were re­duced, com­pa­nies un­doubt­edly would like to hire more, and more would sign la­bor con­tractswith­employ­ees,” Lan­said.

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