The State Council, China's cabinet, has recently announced plans to unify rural and urban pension systems as part of a wider effort to reform its pension scheme. This move is a significant step in China's comprehensive social reforms as well as a crucial move toward establishing a fair social welfare system.
The actual inequality caused by the urban-rural dual structure is a major obstacle for China in marching toward a market-oriented economy. Abolishing such unequal systems and building a fair and sustainable social security system is a major task for the Central Government.
The move will benefit the country in three respects. First, it can guarantee social fairness. As the pensions are integrated with the same standard, both rural and urban people will be able to enjoy equal social security services, including pension rates and financing methods, regardless of their residential register.
Second, it can help promote domestic consumption. Due to China's weak social security system, people have long preferred to save, which reduces consumption demand. After rural and urban pensions are unified, rural people will worry less about their livelihood in later years. Moreover, the Central Government will provide more financial support for impoverished areas in order to alleviate the pension burden of local governments. As the State Council explained, the new policy aims to facilitate the free flow of people, boost social security, stabilize people's expectations for life improvement, promote consumption, and encourage innovation and business start-ups.
Third, building a unified pension system is a significant move to deepen reform. The new policy shows that the Chinese Government has targeted any institutional hindrances to social fairness as a major reform direction. Yet much more needs to be done. People have seen the dawn of "establishing an integrated pension system that is impartial to where people live or work by 2020," which assures people's expectation of a fair and sound social order. Furthermore, the new policy indicates China will undertake a broader range of reform measures.