Recently, the Chinese authorities announced the full implementation of mandatory social security regulations, prohibiting enterprises and employees from privately agreeing to waive social security payments. What’s more severe is that official directives require companies to make up for historical arrears, posing a heavy burden on enterprises and sparking concerns about a wave of closures among small and medium-sized businesses. Experts warn that the bankruptcy of China’s social security system may happen sooner than expected, exacerbating the crisis of institutional trust.
According to the Supreme People’s Court’s judicial interpretation, starting September 1, 2025, any form of “voluntary waiver of social security” agreements will be strictly prohibited nationwide, including practices that substitute cash subsidies for social security payments.
The new regulations require all enterprises, restaurants, and self-employed individuals to contribute to a comprehensive system of pension, medical, unemployment, work injury, and maternity insurance for employees. Violating enterprises not only need to make up for all arrears but also bear a daily late payment fee of 0.05%. Workers can use this as grounds to terminate employment contracts and demand economic compensation, and enterprises that have not paid work injury insurance in full must fully bear employee compensation for work-related injuries.
Data from the Chinese Ministry of Human Resources and Social Security shows that on average, enterprises nationwide need to contribute 38% to 45% of the total wages into the “five insurances and one fund” for employees. For positions with monthly salaries ranging from 3,000 to 5,000 yuan, employers need to bear an additional social security cost of 1,000 to 2,000 yuan per month.
A mainland Chinese finance blogger with millions of followers, known as “Zhou Yaogin,” remarked on social media about the mandatory social security contributions, shocking the online community: “The two most pressing questions are: why the mandatory contributions, and what are the reasons behind the opposition from so many people?”
“The first reason is that the pension gap cannot be filled anymore,” he analyzed, suggesting that there are dual considerations behind the government’s compulsory social security policy.
By 2025, the population of people aged 60 and over in China had exceeded 300 million, and in the next 5 to 10 years, an average of 25 million people per year will retire, while there are only around 17 million new labor force entrants during the same period. Structural imbalances have put significant pressure on the “pay-as-you-go” pension model.
Data from the Chinese Ministry of Human Resources and Social Security confirms the crisis of institutional trust: by March 2025, the number of people across the country who ceased paying their social security contributions exceeded 42 million, accounting for 17.8% of the total number of urban employees covered by basic old-age insurance. Among the age group of 25 to 35, the rate of suspension is as high as 31.7%, and for “flexible employees,” the suspension rate is 38%.
In the first quarter of 2025, over 23% of young people voluntarily suspended payments, marking an 8.6 percentage point increase from the same period the previous year.
Furthermore, Zhou Yaogin mentioned that through the mandatory social security contributions, the government aims to eliminate outdated production capacity and promote industrial upgrading. He revealed that many small business owners are saying they will go out of business because of the additional social security costs exceeding their limited financial capacity, possibly being the last straw that breaks their backs.
Amid the backdrop of sustained economic weakness in China, this policy will particularly impact small and medium-sized enterprises, especially labor-intensive industries such as catering and retail. Industry estimates suggest that strict enforcement of mandatory social security will compress the profit margins of a large number of small and micro-enterprises to less than 5%, potentially leading some businesses to directly exit the market.
For wage workers, the main concern is not actually about the pension issue right now. Since the retirement age for those born in the 1980s and 1990s is likely to be delayed to around 65 due to the current work intensity and food safety issues. Many people online are questioning whether they can even live to 65 under such circumstances.
Therefore, the blogger pointed out that the resistance to the policy mainly stems from the immediate pressures faced by young people, such as housing loans and childcare, lacking confidence in long-term retirement benefits. The dual-track system of urban and rural pension benefits raises questions about fairness, weakening the sense of institutional identity.
Mr. Wu, a legal consultant in Shenzhen, analyzed the deep impact of the new policy from a legal practice perspective. He told reporters that the previous “tacit balance” between employers and employees on social security payments has been forcefully disrupted. Previously, employees and employers could negotiate not to pay social security, allowing employees to retain more money while employers paid less. It was a kind of negotiation and tacit understanding.
“However, this policy not only changes the structure of labor costs but also redefines the rights and obligations between labor and management,” Wu said, explaining that based on an average annual payment of 15,000 yuan per laborer, the new policy will generate a flow of funds amounting to 4 to 5 trillion yuan, significantly impacting enterprise cash flow management and individuals’ disposable income.
He believes that the new policy essentially eliminates the negotiation space between labor and management on sharing labor costs, and imposes a mandatory restructuring of the labor relationship framework. This kind of “one-size-fits-all” institutional change, while clearer in terms of compliance, may eliminate market-regulation mechanisms and potentially lead to negative effects such as job reductions and rigid employment relationships.
“More severe is the policy’s requirement for companies to make up for historical arrears, a cost that could amount to tens of thousands for workers and pose a heavy burden on enterprises,” emphasized Mr. Wu. He stressed that the government’s increasingly stringent measures for recovering social security arrears have now resorted to the same compulsory measures as tax recovery, demanding full repayment alongside equivalent fines.
This “dual punishment” mechanism is putting enterprises at significant operational risk, with some companies even facing a cash chain-breaking dilemma as a result, he stated.
After the implementation of the mandatory social security policy, the labor market experienced alienation. Social media platforms were flooded with examples of companies laying off young employees and hiring older workers close to retirement age.
A recruitment notice from a community canteen in Putuo District, Shanghai, required male employees to be over 60 years old and female employees over 55, only needing to have steady hands and walk steadily, sparking widespread discussion online.
A widely circulated video showed a female law intern earning a monthly salary of 2,500 yuan, leaving approximately 700 yuan after deducting social security, resulting in a daily income of about 30 yuan. After accounting for transportation, meals, and other basic expenses, she was essentially in a situation of “losing money for work,” highlighting the impact of mandatory social security on low-income groups.
The Chinese Academy of Social Sciences previously predicted that the social security fund may face sustainability issues by 2030 and bankruptcy risk by 2035. However, factors such as slowing economic growth and a weak job market may bring forward this time frame.
In response, Assistant Researcher Wang Guochen from the Chinese Academy of Economic Research told reporters that the Chinese social security system is facing a structural crisis.
Wang’s research indicates that the mass exodus or refusal of young people to participate in the social security system reflects deep-seated doubts about the system’s sustainability. The tight financial situation of local governments further exacerbates system fragility.
Audit reports show that some regions are diverting social security funds to cover local debts, severely eroding the foundation of the system. Wang stated that if the social security system prematurely goes bankrupt, it will have a significant impact on retired individuals within the system, threatening social stability.