Starting from September 1st, the implementation of the “Interpretation II” regarding “Legal Issues Applicable to Labor Dispute Cases” issued by the Supreme People’s Court of the Communist Party of China (CPC) on August 1st has begun. The “Interpretation II” stipulates that any agreement between employers and employees to not pay social insurance is invalid, and if an employee terminates a labor contract based on this reason, they are entitled to claim economic compensation from the employer.
This has been dubbed as “mandatory social insurance” and “universal social insurance” by the public.
The “Interpretation II” applies to all labor relationships, whether standard or non-standard. Individual businesses that register and hire employees can also establish labor relationships. The most vulnerable small businesses and workers in Chinese society are the primary targets.
According to the interpretation by the Supreme People’s Court of the CPC, “Interpretation II” can compel employers to lawfully pay social insurance for employees, effectively preventing disputes. Mainland Chinese experts believe this judicial interpretation is a turning point, akin to a sword hanging over their heads.
Chinese rights lawyer Wu Shaoping, currently residing in the United States, told the Epoch Times that agreements between employees and employers to not pay social insurance are illegal. The laws regarding labor contracts and social insurance in China have long established regulations, with social insurance being mandatory, as passed in 2010.
He mentioned that in practice, there have been leniencies in enforcement by judicial and administrative authorities. “When I handle labor contract disputes for workers in China, the labor arbitration committee ignores it, the courts do not intervene, reporting to the labor bureau is ineffective, and they all pass the buck to each other.” With the new judicial interpretation in place, someone is finally taking responsibility. If an employee sues a company, the outcome will be imminent, leaving no escape for the employer.
However, will Chinese companies and employees really change their practice of voluntarily giving up social insurance agreements and replacing them with cash subsidies?
A compilation of reports from domestic and foreign media since August 1st by the Epoch Times showed that some small business owners and employees have not abandoned their mutual understanding, while some have reduced employee salaries or resorted to layoffs, and some are taking a wait-and-see approach.
A report by Reuters on September 23rd interviewed 18 Chinese employees, with only 3 stating that their employers consistently paid their social insurance. The rest indicated that no social insurance contributions were made on their behalf.
Employees told Reuters that in some cases, employers requested them to sign contracts reallocating part of their salary as “social insurance subsidies,” without any increase in actual wages. A supermarket cashier in Guangxi was informed to sign a new contract at the end of August, requiring her to “voluntarily” waive the company’s social insurance contribution and give up the right to arbitration and litigation.
On August 11th, Southern Weekend reported that a worker in the catering industry mentioned that after the new regulations were introduced, the boss required changes to the wage structure from September 1st, adding a social insurance subsidy item without changing the total amount. Another restaurant owner mentioned that after reimbursing social insurance, they were preparing to slash wages or even change staff.
A report by Tianjin Daily on September 16th featured Mr. Meng, who works in the automotive repair industry, admitting that he hadn’t been paying social insurance for his employees, and the employees had hardly requested it. Meng shared that it would be difficult to bear the expense of social insurance for employees. If this money is solely deducted from employees’ income, they might not agree. After the new regulations came into effect, he decided not to hire additional staff for the time being due to the high risk.
Xiao Gao, a hairstylist at a barber shop, stated that after the initial buzz following the new regulations, there hadn’t been much change at the barber shop. He mentioned that it’s rare for the hairdressing industry to hear about employers paying social insurance for their employees, and he also didn’t consider having his boss pay for his social insurance. Retirement is too far off for him, and making more money feels more secure.
According to a report by Caixin, Fang Tao working in Guizhou chose to “voluntarily waive paying social insurance” mainly due to his low salary. He isn’t considering future retirement issues, as he believes that cash in hand right now is more practical. Similarly, many of his colleagues think that way too.
Li Yu, who runs a household service intermediary company in Beijing, noted that some cleaners over 50 prefer not paying social insurance to receive more cash. Li Yu had initially discussed signing agreements with employees to “voluntarily waive social insurance,” but after the new judicial interpretation, she decided to outsource all non-administrative staff to a manpower company.
In Henan, a small restaurant owner named Wang Xiaodan currently has three employees. Following the social insurance payment requirements, she plans to dismiss one employee and pay social insurance for the remaining two. Additionally, she is contemplating downsizing her store to convert it into a purely takeaway shop to save on rental costs.
“In small cities, individual businesses and small enterprises generally do not pay social insurance for employees,” she admitted. She added that employee turnover is high, with some leaving after a few months, while others are unwilling to contribute.
Compared to other countries, the proportion of social insurance contributions required from enterprises and individuals in China is extremely high, with a low government contribution.
A study cited by Xinmin Evening News in 2010, based on research by Tsinghua University professor Bai Chong’en, found that the sum of the five mandatory insurance payments in China was equivalent to 40% to 50% of wage levels, around twice the average level in the “BRIC” countries, three times that of the Nordic countries, and 2.8 times that of G7 countries, and 4.6 times that of neighboring East Asian countries.
In 2013, China News Service’s financial channel calculated that in Beijing, the percentage of personal contributions to the “five insurances and one fund” relative to pre-tax wages was about 66.48%, in Shanghai around 62%, and in Guangzhou approximately 52.35%.
In 2015, Xinhua News Agency reported that the current contribution rates for the “five insurances” in China were around 29.8% for enterprises and about 11% for individuals, totaling more than 40% of an individual’s income.
A study in 2017 indicated that among 175 countries (or regions) globally with social insurance systems in place, the average rate for employer social insurance was 14.27%, while the sum of the five social insurance rates paid by Chinese enterprises was 28.25%.
Even though the CPC government lowered the upper limit of pension contribution rates six times between 2015 and 2019, it still remains significantly higher than about a third of the OECD countries, and far more than the rates in the United States (10.6%) and South Korea (9.0%).
As per data from the Ministry of Human Resources and Social Security of China, the average contribution needed by enterprises to pay for social insurance for employees ranges from 38% to 45% of the total wages. For positions earning between 3,000 to 5,000 RMB per month, employers must bear an additional cost of 1,000 to 2,000 RMB monthly for social insurance.
It is precisely due to the excessively high statutory rates that do not align with the survival reality of many small and micro-enterprises, prompting agreements between small businesses and employees to avoid paying social insurance to become a norm and unspoken agreement. According to a survey by Peking University’s National Development Institute, many small business operators mainly focus on making enough to get by.
At the end of August, a survey by the human resources company Zhonghe Group on 6689 enterprises found that only 34.1% of the companies “fully complied” with social insurance regulations.
The 2024 Corporate Social Security White Paper published by “51 Social Insurance” surveyed 6,125 companies and nearly 300,000 individuals nationwide, finding that only 28.4% of companies had fully compliant social insurance base figures.
Reuters believes that the ruling by the Supreme People’s Court of the CPC may not be able to generate the substantial funds required to provide social insurance.
Economist Davy J. Wong, currently residing in the United States, told the Epoch Times that low-income individuals place high value on their own returns, with the millennials lacking confidence in receiving social insurance benefits in the future, leading them to resist contributing and prefer signing waivers. He noted that it is a matter of lost credibility, mentioning that local governments are wary of business closures, fearing a rise in unemployment, hence turning a blind eye to certain matters.
This “partial compliance” has acted as a “buffer” in the past few decades, alleviating to some extent the economic impact of high social insurance rates, sustaining the survival and employment of a significant number of small and medium-sized enterprises.
The latest judicial interpretation by the Supreme People’s Court of the CPC, enforcing high rates, effectively removes this “buffer.”
Davy J. Wong mentioned that if the grey area buffer is eliminated, this could lead to: firstly, a large number of small and medium-sized enterprises being forced to shut down, downsize, or lay off workers; secondly, non-standard employment and flexible job opportunities will increase, thus weakening the overall social security system; thirdly, it will lead to short-term chaos in the labor market, severely affecting consumption and entrepreneurship among the general population.
Chinese-American economist Li Hengqing told the Epoch Times that in the past, private businesses found ways to bypass social insurance. If all social insurance contributions were made, it would equate to a 30% increase in the total wages, questioning whether companies would be willing to retain their workers.
Wu Shaoping believes that the new regulations might lead to a surge in labor dispatch companies. Through labor dispatch companies, the actual employer-employee relationship doesn’t exist between the staffing unit and the workers, thereby avoiding social insurance contributions and even bypassing Work Injury Insurance responsibilities, which the labor dispatch company takes over.
He explained that for instance, if a company needs to pay 5,000 RMB to employ someone, they could instead pay a labor dispatch company with the same amount. The labor dispatch company could hire employees for 3,000 RMB, take 2,000 RMB for themselves, and pay for the employees’ social insurance at the minimum standard required.
He stated that due to the overly high taxes imposed by the CPC, labor dispatch practices have been widely abused in recent years. While there are regulations for labor dispatch, namely being temporary, auxiliary, and substitutable, in practice, virtually no job positions are exempt from labor dispatch, effectively rendering the system ineffective.
Experts unanimously state that the recent judicial interpretation by the Supreme People’s Court of the CPC, with the issuance of “Interpretation II,” is not intended to protect the rights of workers, but rather to address the shortfall in social insurance funding that needs to be replenished.
Davy J. Wong mentioned that the enforcement of mandatory social insurance through a judicial interpretation, said to compel compliance and prevent disputes, actually masks the financial strain on the government and the social insurance fund. The central aim behind the compulsion of social insurance is to compress the grey area, filling the gaps in fiscal and social security.
Wu Shaoping noted that there is currently a huge deficit in the CPC’s pension funds, prompting them to integrate these laws from paper into practicality, increasing the sources of social insurance funds.
By the year 2024, the national social security fund deficit exceeded 600 billion RMB; the Beijing Municipal resident medical insurance fund registered a deficit of 520 million RMB in 2024, while the Tianjin resident medical insurance fund posted a deficit of 1.36 billion RMB the same year.
Numerous surveys indicate a continuous decline in the social insurance payment rates in China.
According to a survey by the Chinese Society of Social Security, the compliance rate of employees contributing to the pension insurance fund dropped from 85.2% in 2011 to 80.8% in 2022. The annual number of individuals halting contributions spiked from 29.56 million in 2011 to 63.25 million in 2022.
As per data from the Ministry of Human Resources and Social Security of China, as of March 2025, the number of individuals halting social insurance payments nationwide exceeded 42 million, representing 17.8% of participants in urban employee basic pension insurance. The age group of 25 to 35 had a staggering 31.7% discontinuation rate, with “flexible employment personnel” at 38%.
A survey titled “2025 China Youth Social Security Participation” revealed that among the under-30 age group, nearly 20% were not enrolled in the basic pension insurance, while the participation rate among flexible employment individuals was less than 15%.
A joint study conducted by investment management company Fidelity International and Ant Fortune found that only 44% of millennials (18 to 34 years old) have started saving for retirement.
In an article by Chinese Academy of Social Sciences scholar He Bin, he mentioned that China’s social security funds are overly reliant on contributions from businesses and individuals, with insufficient supplementary support from fiscal subsidies and state-owned capital transfers.
He highlighted the essence of social security as a public good provided by the state, emphasizing the need to utilize general fiscal revenue to support the social security fund, which is an international norm. However, the financial assistance provided by CPC carries a hue of “deficit compensation,” lacking anticipated systematic arrangements. He pointed out that profits from state-owned enterprises, which should ideally supplement the social security fund, fell short of making a substantial contribution.
Wu Shaoping noted that the bulk of the social security funds is derived from pension payments, earned from workers’ labor, with the government merely acting as a coordinator in aggregating these funds. However, there has been no visible injection of funds into the social security fund by the government. In reality, it is the earnings of ordinary people that feed these funds, but the CPC has manipulated a large portion of the social security funds for personal gain, leading to substantial deficits, with the media and the public lacking the means to oversee it.
Furthermore, CPC’s annual expenditures on maintaining social stability and subsidizing export enterprises surpass military spending.
Beijing University professor Li Ling stated that by 2022, China’s healthcare expenditures will reach 7 trillion RMB. In theory, this amount should be sufficient to establish a universal healthcare insurance system akin to Taiwan or South Korea.
In a report by the Financial Times last year, the CPC’s spending on healthcare and social security for the general populace falls below levels seen in most countries with similar income profiles, representing only 6% of the Gross Domestic Product (GDP).
Foreign observers believe this system reflects the nature of the CPC, wherein the party-state dictates the form, content, and extent of welfare, rendering it a “gift” rather than a “right.”
Wu Shaoping stated that it was inevitable for the CPC to take such measures, as it poses negligible political costs to them.
Li Hengqing remarked that the government is financially strained, hence erasing all the grey areas that existed in the past. This is not a mistaken choice but indicates that the CPC doesn’t regard the common people’s well-being as a priority.
The reluctance of the Chinese younger generation to participate in social security largely stems from a lack of trust in the system. Among the myriad of issues, the most emotionally charged one is the “dual-track” system for pensions.
Although the transition phase of the institutional restructuring of pension insurance for ten years within government and public institutions ended in October 2024, aiming to formally unify the system, a significant disparity in benefits still persists within and outside the system, even showing signs of widening.
The “2022 China Pension Exhibition Report” shows that the average pension for retirees in government and public institutions is about 1.8 times greater than that of corporate retirees. In economically developed areas like the Yangtze River Delta and the Pearl River Delta, pensions for government and public sector retirees can exceed twice the amount received by corporate retirees.
Davy J. Wong mentioned that China’s social insurance contribution rates are among the highest globally, and the majority of these contributions are centralized. Centralization might sound beneficial, but in reality, it leads to funneling money from businesses and individuals to centralized pools that are under state control.
The principle known as “viewed as contributions” exemplifies this, with calculated standards far exceeding the practical payment amounts.
Commentator Peng Shuo’s article points out that the policy of “viewed as contributions” shifts historical financial burdens from the planned economy era onto today’s young laborers. Responsibilities that should have been borne by the state’s finances are surreptitiously passed onto regular workers. The result is that today’s youth are shouldering the burden, not just for their future security but also for the systemic flaws of the past few decades.
This system design, objectively speaking, has led to a reverse redistribution effect of “robbing the poor to benefit the wealthy.”
A young netizen bluntly stated, “Why am I unwilling to pay social insurance? Because I don’t know whose retirement I’m funding!”
Davy J. Wong explained that with high contribution rates and low payouts, it’s evident as a losing proposition, causing young individuals to feel like they are working to support someone else’s retirement with no personal benefits.
Li Hengqing pointed out that China’s social security operates on a pay-as-you-go basis, meaning that this year’s contributions are immediately disbursed to fund retirees this year, with no reinvestment for future generations. The one-child policy over the past three decades has wiped out an entire generation of Chinese workers, leading to a declining youth population, resulting in the closure of many primary and secondary schools. Consequently, the youth now understand that when it’s their turn to retire, the social security fund will likely be depleted.
Wu Shaoping mentioned that the entire CPC regime lacks credibility, constantly changing their policies. For instance, during the one-child policy, they promoted family planning and claimed the state would care for the elderly. But now, where is the state? With so many elderly receiving a meager 150 RMB each month, can they afford to sustain themselves?
“People see the discrepancy and realize that the CPC’s entire social security system is essentially a Ponzi scheme, and nobody is willing to believe it’s normal,” he stated.