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Understanding China’s Social Security System

2013-12-13 10:30:42 Release Author: Read Flow:6348次

The social security system in China is based upon guidelines issued by the central government, although the specifics and administration of the system is managed at the local level. This is the only practical method in a country as diverse as China, as any rigid system defining specific contributions to be made and benefits receivable could not be expected to meet the needs of citizens in cities as diverse as Lhasa, Harbin, Shanghai or Zhongshan for instance.


All over urban China social insurance is broken down into five distinct categories. These are:

1. Pension
2. Medical insurance
3. Unemployment insurance
4. Maternity insurance
5. Occupational injury insurance



In addition to the five social insurances, employers are also required to pay into a housing fund. The housing fund is fundamentally different from the above insurances in two ways. First of all the contributions made by both employee and employer accrue directly to the employee. Secondly, administration of this fund is handled by the housing fund center separately from social insurance.

The reason behind the Chinese government requiring employees to contribute to a housing fund is to encourage them to save money to purchase a house. Funds accrued in this account can be used to make the initial down-payment as well as to repay mortgages taken out when purchasing a house. Individuals that have sufficient funds accrued in a housing fund account can also apply for a lower mortgage rate compared to a normal commercial loan.

Administration of housing fund differs greatly around the country. In Shenzhen no contribution is required from the employee at all, while the employer is required to pay a fixed rate of 13 percent. In contrast, in Dalian the employer can be required to pay up to 25 percent (although there are some special reduced rates that can be applied) while the employee contributions can be a maximum of 15 percent. The housing fund can be quite a significant additional cost for employers, so it is necessary to understand the system well in the locality where they are employing people before making any offers to new employees.

Together, social insurance and housing fund are commonly referred to as “mandatory benefits.” We will use this term when referring to these five insurances and housing fund throughout the rest of this article.

Employers are usually required to handle the administration of mandatory benefits on behalf of their employees, which means first of all affiliating the employees to the company “accounts” and then calculating and making the contributions (both the employer’s and the employee’s portion) on a monthly basis. Fortunately for employers, although there are five different types of contribution to be made for social insurance, a lump sum can be paid each month. This is usually made to the social insurance bureau, which will manage the disbursement of the contributions received to the various funds. Another amount should be paid to the housing fund bureau.

Recently in some Chinese cities, the responsibility for collection of social insurance has shifted away from the social insurance bureau to the local tax bureau. The reason for making this transition is to allow the local tax bureau to monitor the social insurance contributions being made as this will affect the amount of individual income tax payable (contributions made to social insurance by individuals are considered tax exempt for individual income tax purposes).

In some cities the administration of mandatory benefits can be managed online, saving a lot of time and effort visiting bureaus and facilitating the provision of such mandatory benefit management services from a remote location. Online services are by no means universal, Beijing being a notable example. In such cities a lot of chopping of documents, running to government bureaus and waiting are still necessary.


 

 


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