China Points to Social Welfare Reforms Needed for Urbanization Drive
    2013-11-13 14:05:42     Reuters       Web Editor: Zhang

Among the issues China's top leaders tackled this week as they hammered out their policy roadmap, some may determine whether children attending the likes of the Pengying school in Beijing fulfill their dreams.

Thanks to China's system of internal passports, or hukou, parents in search of better jobs in the capital, or other urban areas, leave behind the public services they were entitled to as residents of their home villages - their pension, healthcare insurance and free public schooling.

That means that if they want to educate their children they have to find an unlicensed school, such as Pengying, which charges an annual fee of 1,400 yuan ($228), most of a month's earnings for some migrant families.

At the school, desks are rusty, smoggy air seeps in through broken windows and the acrid smell of broken plumbing fills the hallways. Students learn the basics despite such conditions, but importantly may not sit for the official exams required to attend local universities.

"There is no choice," said Mrs. Wang, the mother of another of Pengying's students who declined to provide her given name. She brought her 8-year-old to Beijing from southwest Sichuan province, more than 1,000 kilometers (625 miles) away, and started a catering business. "There is no future either if you stay at home," she said.

Easing the hukou system would undoubtedly make life easier for the more than 200 million people who have moved into China's cities from smaller towns and villages and the roughly 110 million more people China expects to move from the countryside into cities in the next seven years.

Beijing wants this mass migration to be the backbone of an urbanization drive to combat rapidly rising factory wages and to help wean the economy from a dependence on manufactured exports by promoting urban consumer consumption.

At the Communist Party's Central Committee's third plenary session, which ended on Tuesday, the country's leaders pointed to reforms that analysts have said could set in motion changes in how social services are paid for, ultimately leading to a nationwide social safety net seen as critical if the urbanization drive is to work.

A report from the official Xinhua news agency on the closed-door meeting said the leaders promised a "more fair and sustainable social security system" and deeper reform of medical and health systems.

It also agreed to "step up efforts to improve social welfare and deepen institutional reforms to realize social justice for all."

BENEFITS

The ideas are broad, so it is not clear exactly what China's leaders may have in mind. That will only emerge in coming months or possibly years.

But analysts say unifying China's patchwork of social services would let citizens seek opportunities wherever they might find them and produce broader benefits for the economy.

Portable healthcare, pensions and education could revive China's weakening productivity gains and reduce the propensity of China's citizens to save for a rainy day rather than spend.

It could also quell growing discontent over widening income inequality and a disparity of opportunity, a source of great anxiety for a leadership that prizes social stability over almost all else.

"If the central government pays for this, you can build up a national standard, so people can move," said Peng Wensheng, chief economist at China International Capital in Beijing. "Mobility means a better use of skills, a more efficient use of skills."

Shifting the financial burden of such social services to the national government would eliminate a mismatch between tax income and spending, whereby local governments collect just over half of national tax revenue but bear 80 percent of public spending costs.

Doing that, economists say, would remove much of the rationale among local governments for a massive borrowing binge that has pushed local government debt to Detroit-like levels.

Credit Suisse estimates local government debt could exceed 16 trillion yuan ($2.6 trillion), or as the IMF estimates, equivalent to roughly 30 percent of China's economic output.

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