Starting from tomorrow (September 1st), China will implement mandatory social security measures. People are worried that this policy will dim prospects for income and employment, impacting livelihoods and the overall economy. Many companies have already chosen to shut down factories or outsource employment to avoid paying social security contributions. There have been numerous complaints on social media platforms in China about mandatory social security, with both companies and laborers expressing discontent.
On August 1st, the Supreme People’s Court of the CCP issued an interpretation requiring employers to contribute to social security for employees starting from September 1st. Any agreements to waive social security contributions through negotiation will be deemed invalid. The official stance is that this is to protect the rights of workers, and any employer trying to evade their responsibility to pay social security contributions may face penalties and accountability.
This interpretation emphasizes the compulsory nature of social security contributions. While previous regulations under the CCP’s Labor Law stipulated that “employers and workers must participate in social insurance and pay social insurance premiums according to the law,” making social security contributions mandatory has posed challenges for small and medium-sized enterprises and individual businesses already struggling to generate significant profits.
Media outlets under Caixin and Sohu News reported that in recent years, many small and medium-sized enterprises have been facing operational difficulties and have not been contributing to social security for their employees. The introduction of mandatory social security requirements has led to widespread discontent among companies and employees. Some employers have opted to reduce employee salaries, lay off workers, or shut down factories.
Starting from the second half of last year, a daily necessities factory in Yiwu, Zhejiang, has been experiencing a gradual decline in business. The owner, Chen Ping (pseudonym), stated that they have had almost no profits in recent years, with overall revenues and expenses remaining balanced, but the “new social security regulations” issued in August became the final straw, prompting the decision to lay off workers and close the factory.
Chen Ping mentioned that some garment factories in Zhejiang typically employ 300 to 400 people. If reported by workers collectively or forced to make retroactive social security payments, it would be a fatal blow to small factories already facing operational challenges. For workers like seamstresses and packers whose salaries are around 6000 RMB, contributing to social security would definitely lead to salary reductions.
Liu Yu (pseudonym) managing a textile factory in Jiangsu expressed that the textile industry has limited profit margins, coupled with weak domestic and foreign market demands and significant fluctuations in orders. If the current regulations require employers to contribute fully to social security for employees, labor costs will account for approximately 70%, making factory survival even more difficult.
A restaurant owner in a county scenic area mentioned their strategy of not hiring part-time employees anymore, reducing the number of regular employees, and contributing social security for the remaining 3 employees while cutting salaries by 300 to 500 RMB.
In addition, some companies have chosen to outsource employment to manpower agencies. According to Caixin, Li Yu (pseudonym), operating a household service agency in Beijing, decided to outsource all employees except administrative staff to a manpower company. Li also mentioned other industry peers opting for outsourcing or layoffs.
In China, the practice of not fully contributing or under-contributing to social security has been widespread. Many employers and employees privately agree not to pay into social security, enabling employees to receive higher take-home pay. The new regulations announced by the Supreme People’s Court of the CCP on August 1st have sparked significant backlash among the general public in China. The direct consequence of the new social security rules is a significant reduction in take-home pay for workers, coupled with a higher risk of unemployment, provoking a certain level of panic. Concerns are raised that the ruling will further harm the interests of small companies and workers, leading to layoffs and a wave of business closures.
Since early August, many companies have begun reducing employee salaries to offset the additional social security expenses resulting from the new regulations coming into effect. Online complaints about salary reductions have been rampant.
In a video on WeChat, a user from Liuzhou, Guangxi, commented that “the salary has decreased by 1600 RMB,” sparking discussions. Another netizen echoed, “It’s not just Liuzhou; it’s the same everywhere.” A telecom outsourcing worker in Nanning, using the pseudonym ‘Nameless Song,’ mentioned that after deducting social insurance, the take-home salary amounted to only 1700 RMB.
A netizen from a rural area in Shandong sarcastically remarked, “Farmers earn just over a hundred yuan a month; are you still complaining about it?”
Another person lamented, “You have a salary of 1600 RMB, while others have lost their jobs altogether.”
The Chinese social security system includes “five insurances and one fund,” comprising old-age insurance, medical insurance, unemployment insurance, work injury insurance, maternity insurance, and a housing provident fund. While paying into social security is compulsory according to existing laws, enforcement has been relatively lax.
Some analysts believe that the essence of this mandatory social security upheaval lies in the CCP transferring the crisis to ordinary people amidst significant financial deficits in the social security system.
An article by political commentator Peng Shuo highlighted that unlike many countries, China implements a “medical expense reimbursement cap” system under the social security structure, forcing ordinary citizens to bear significant medical costs in times of serious illnesses. There are also substantial inequalities within the pension system, leaving young people feeling like they are “supporting other people’s parents for retirement.”
The previous “equal payment” policy shifts the historical liabilities of the planned economy era onto today’s young workers. They not only need to save for their own futures but also cover the deficiencies of past decades, resulting in an invisible “intergenerational exploitation.”
Furthermore, the so-called “equal payment” policy passes on the historical liabilities of the planned economy era to today’s young workers. Responsibilities that should have been borne by the government’s finances have been “cleverly” shifted onto regular employees. The outcome is that today’s young people not only save for their future but also foot the bill for the institutional deficiencies of past decades. The supposed “social security” has turned into actual “intergenerational exploitation.”
According to information released by the CCP’s Ministry of Finance in 2022, China’s basic old-age pension shortfall reached 700 billion RMB in 2021. According to a recent report by the Insurance Industry Association on China’s pension funds, this shortfall is projected to reach 8-10 trillion RMB in the next ten years. Faced with massive deficits, the government’s response has been to enforce universal contributions, delay retirement ages, raise payment bases, rather than compensating from state-owned assets.
Peng Shuo’s article indicates that such a system is bound to create severe social and psychological fractures. In the current economic downturn, although this policy is nominally meant to protect people’s rights, the resulting wave of layoffs, salary reductions, and business closures will undoubtedly worsen people’s income and employment prospects, further exacerbating the challenges facing the Chinese economy.