Social security has been a hot topic on the Chinese internet lately, so in this edition, I want to share an article by Zheng Gongcheng, founding president of the China Association of Social Security. The article makes a series of pretty bold policy proposals, including voluntarily lowering the basic pension replacement rate for retirees from government agencies and public institutions, raising pensions for rural elders, and making it official that China’s pension system runs on pay-as-you-go financing, among other things. In the words of the Fifth Plenum that just concluded, this is pension reform that “turns the blade inward.”刀刃向内
Zheng is a professor at Renmin University’s School of Labor and Human Resources and the founding president of the China Association of Social Security, a post he has held through consecutive terms ever since. He also sits on the Standing Committee of the National People’s Congress and its Social Development Affairs Committee, and serves as a vice-chairman of the China Democratic League’s Central Committee. He was deeply involved in drafting the Social Insurance Law and the Charity Law, and has spent years pushing for better pensions for farmers. It is fair to say he is one of the most authoritative voices on social security in China.
Every public policy eventually has to answer the question of “who pays, and who benefits.” The pension problem is not just about where the money comes from. It is also why different groups receive such wildly different benefits, and on what grounds. Right now, retirees from government agencies and public institutions do best. Stack occupational annuities on top of their basic pensions, and their replacement rate can exceed 80%, against roughly 50% for enterprise employees. That lands squarely on the public’s most sensitive nerve: fairness.
Simply put, the mutual-pooling nature of public pensions is not fully reflected in how the system works, and there has never been a clear official statement on how it actually operates. The current basic pension scheme for employees combines individual accounts with a social pooling component. The pooled part is essentially contributions from today’s working population paying today’s pensions. That is pay-as-you-go, not a set of personal savings accounts where everyone’s past contributions sit untouched and get handed back with interest after retirement.
Yet whenever this comes up, I notice many people defend their generous pensions with the logic of personal savings: “I paid in more, so of course I should receive more.” And farmers’ low pensions are simplified into the logic that they receive less because they paid in less.
The inheritability of individual accounts gives this argument an extra boost. Article 14 of the current Social Insurance Law stipulates that when an individual dies, the balance in their individual account can be inherited. Which in turn reinforces the belief that pensions are simply personal property.
Against these arguments, Zheng’s proposals on the fairness front include:
First, lower the basic pension replacement rate for government and public institution retirees to narrow the gap with enterprise employees. He suggests bringing it down to around 50%, roughly where enterprise employees stand, while expanding enterprise annuity coverage. (Zheng never actually says “cut pensions,” but this is the blade turning inward all the same.)
Second, raise farmers’ pensions substantially, turning recognition of their historical contributions into actual benefits. For the older generation of farmers, the article recommends raising the basic pension by age bracket; the older you are, the bigger the increase, with funding from sources like dedicated fiscal investment and transfers of state-owned assets. For current and future farmers, the idea is to encourage enrollment and contributions while having the government and rural collective economic organizations share the burden, improving benefits step by step.
The third proposal matters even more to me: re-establish public pensions as a system of mutual support, treat individual accounts as nothing more than bookkeeping entries rather than private property, and cut their link to inheritance. The state would also state clearly that the basic pension fund operates on a pay-as-you-go basis, so that policy planning can aim to balance annual revenue and expenditure, with a modest overall surplus. The point of all this is to make public pensions an institution that promotes social fairness, not a tool for accumulating personal wealth and passing assets down to the next generation.
Yuxuan JIA also covered this piece in Pekingnology, I highly recommend reading.
Below is the English version of the article I made with the help of AI.
Optimizing the Social Security System and Making Solid Progress Toward Common Prosperity
Abstract
Social security and common prosperity share compatible principles, consistent values, and aligned goals. Building a high-quality social security system is a key measure for making solid progress toward common prosperity. Since the 18th National Congress of the Communist Party of China (CPC), social security has become a fundamental institutional arrangement through which the entire population shares in the fruits of national development. It provided important support for winning the battle against poverty and building a moderately prosperous society in all respects. The experience accumulated in this process also provides basic guidance for advancing common prosperity.
In the new development stage, as Chinese modernization moves forward across the board, efforts should focus on reshaping underlying principles, unifying systems, increasing investment, and strengthening the rule of law. Pensions, medical security, social assistance, and services for older people and children should be the priorities in building a high-quality social security system that helps the entire population take concrete steps toward common prosperity.
Keywords: social security; common prosperity; institutional optimization; strengthening support for those with low benefits and vulnerable groups
A defining requirement of socialism is common prosperity for all, and building a high-quality social security system is a key measure for making solid progress toward that goal. General Secretary Xi Jinping has stated:
“We must put the people first, uphold common prosperity, and make improving people’s well-being and promoting social fairness the fundamental starting point and ultimate objective of developing social security, so that the fruits of reform and development benefit all people more fully and fairly.”
This important statement profoundly reveals the logical relationship between social security and common prosperity.
Since the 18th CPC National Congress, reform of China’s social security system has deepened comprehensively, coverage has expanded rapidly, and benefit levels have continued to rise. Social security has become a fundamental institutional arrangement through which all people share in the fruits of national development.
As China enters the 15th Five-Year Plan period, an important objective is to:
“Improve a multitiered social security system that covers the entire population, coordinates urban and rural areas, is fair and unified, safe and well regulated, and sustainable, with a focus on strengthening protection for key groups and enhancing the system’s sustainability.”
This indicates that social security will play an even more important role in advancing common prosperity. Based on an analysis of the logical relationship between social security and common prosperity and a review of China’s experience, this article combines a focus on goals with a focus on problems to propose general approaches and specific measures for optimizing the social security system.
I. The Logical Relationship Between Social Security and Common Prosperity
1. The theoretical meaning of common prosperity
The central meaning of common prosperity is shared development: prosperity in both people’s material lives and their cultural and spiritual lives. Prosperity for a small minority is not common prosperity, nor is prosperity limited to a few regions. Common prosperity is a society-wide concept that emphasizes a coordinated national approach.
Humanity’s pursuit of a better life and a world serving the common good has never ceased—from the ideal of a harmonious society proposed by Confucius more than 2,500 years ago and the ideal state envisioned by Plato more than 2,400 years ago, to Thomas More’s Utopia in the 16th century and the theoretical system of scientific socialism established by Marx and Engels in the 19th century. In capitalist societies, however, sharing cannot become the core value guiding national development. Only under socialism can common prosperity move from ideal to reality.
Since its founding, the CPC has made seeking happiness for the Chinese people and rejuvenation for the Chinese nation its original aspiration and mission. Through its long experience of revolution and development, the Party has continuously deepened its theoretical understanding of common prosperity and made further progress toward it through concrete policies and measures.
In December 1953, the CPC Central Committee adopted the Resolution on Developing Agricultural Producers’ Cooperatives, which explicitly used the term “common prosperity” for the first time. It set the development goal of enabling farmers “gradually to free themselves completely from poverty and attain common prosperity and a generally flourishing life.”
In October 1955, speaking at a symposium on the socialist transformation of capitalist industry and commerce, Mao Zedong stated:
“Under the system and plan we are now implementing, we can become richer and stronger year by year, and we can see ourselves becoming richer and stronger each year. This prosperity is common prosperity, and this strength is common strength—everyone has a share.”
During the new period of reform, opening up, and socialist modernization, Deng Xiaoping developed a series of innovative arguments and proposals concerning common prosperity.
On the one hand, he identified common prosperity as an essential feature and the greatest advantage of socialism. Deng stated:
“Under socialism, wealth belongs to the people. Socialist prosperity means prosperity for the entire population. The principles of socialism are, first, to develop production and, second, to achieve common prosperity.”
He also stated:
“We have spoken of common prosperity since the beginning of reform. The day will come when it becomes the central issue. Socialism does not mean a small number of people becoming rich while the majority remain poor. That is not socialism. The greatest advantage of socialism is common prosperity, which embodies the essence of socialism.”
And:
“The essence of socialism is to liberate and develop the productive forces, eliminate exploitation and polarization, and ultimately achieve common prosperity.”
On the other hand, taking account of China’s basic national conditions in the primary stage of socialism, Deng proposed a development path in which those who became prosperous first would help others achieve prosperity. He explained:
“The concept of common prosperity was put forward in this way: some regions have the conditions to develop first, while others develop more slowly. The regions that develop first should help those that develop later, ultimately achieving common prosperity. If the rich become richer and the poor become poorer, polarization will emerge, and the socialist system should and can prevent this. One solution is for the regions that become prosperous first to contribute more in taxes and profits to support the development of poorer regions.… We can envisage that, when a moderately prosperous standard of living is reached at the end of this century, this issue should be prominently raised and addressed.”
Subsequently, in discussing how to properly handle several major relationships in socialist modernization, Jiang Zemin emphasized:
“Achieving common prosperity is a fundamental principle and essential feature of socialism, and we must never waver in this commitment.”
In discussing the construction of a harmonious socialist society, Hu Jintao stated:
“While promoting development, we must give greater prominence to safeguarding social fairness, use a combination of measures, and gradually establish, in accordance with the law, a system for guaranteeing social fairness centered on fairness in rights, opportunities, rules, and distribution, so that all people share in the fruits of reform and development and steadily advance toward common prosperity.”
Since socialism with Chinese characteristics entered the new era, General Secretary Xi Jinping has devoted close attention to common prosperity and steadily advanced it, developing a series of new ideas and institutional arrangements.
First, he introduced the concept of shared development to guide the country toward common prosperity. The Fifth Plenary Session of the 18th CPC Central Committee first proposed a people-centered development philosophy. As he explained, “The essence of the concept of sharing is to uphold a people-centered development philosophy, reflecting the requirement of gradually achieving common prosperity.”
Second, the phased objectives of common prosperity were translated into the concrete tasks of winning the battle against poverty and building a moderately prosperous society in all respects. In October 2017, when the Standing Committee of the Political Bureau of the 19th CPC Central Committee met Chinese and foreign journalists, Xi emphasized:
“In building a moderately prosperous society in all respects, not one person should be left behind; on the road to common prosperity, not one person should be left behind. We will mobilize the strength of the entire Party and the entire country, resolutely complete the task of poverty alleviation, and ensure that we fulfill our commitment.”
Third, a timetable and roadmap were established for making solid progress toward common prosperity. The schedule calls for concrete progress toward common prosperity for all by the end of the 14th Five-Year Plan period; more notable and substantive progress by 2035; and the basic realization of common prosperity for all by the middle of this century.
Institutionally, this involves establishing foundational arrangements that coordinate primary distribution, redistribution, and tertiary distribution, while strengthening and improving the targeting of adjustments through taxation, social security, and transfer payments.
Fourth, theoretical understanding of common prosperity and Chinese modernization has continued to deepen, including the important proposition that “common prosperity for all is an essential feature of Chinese modernization.” In February 2023, Xi explicitly stated:
“Modernization that delivers common prosperity for all is an essential feature of Chinese modernization and a distinctive characteristic that sets it apart from Western modernization.”
2. Social security is a key measure for advancing common prosperity
Social security and common prosperity share compatible principles, consistent values, and aligned goals.
First, they uphold a shared commitment to sharing. Common prosperity represents the ideal state of shared development, encompassing sharing by all, sharing in all dimensions, sharing through joint effort, and gradual sharing. Social security is a compulsory sharing mechanism established by the state through law. Its goal is universal access with appropriate provision for everyone, and its development likewise involves a transition from low to high levels of protection and from imbalance to greater balance.
Second, both uphold fairness as a core value. Ultimately, common prosperity concerns social fairness and justice. Eliminating poverty and polarization provides its foundation, while narrowing disparities and correcting unfair distribution are necessary steps toward it. As a mechanism of income redistribution, social security takes fairness and justice as its core values. Its starting point and ultimate objective are to promote fairness and reduce inequity through compulsory sharing.
Third, both pursue the same goal of improving people’s well-being. Both seek to continually enhance welfare, protect people’s lawful rights and interests, and enable everyone to share in the fruits of national development.
Developing social security is an essential path toward common prosperity. There are many ways to achieve sharing, but from the perspective of wealth distribution, social security is undoubtedly a fundamental institutional arrangement.
Taxation, social security, and transfer payments are three interrelated mechanisms for redistributing wealth, with social security occupying a central position. Taxation is the principal source of public revenue, and the funds it raises ultimately return to members of society through social security and other channels. Transfer payments primarily address imbalances in resource allocation between regions and groups. Alongside large-scale infrastructure development, social security transfers are indispensable. Providing tangible benefits through social security is also the most direct mechanism of income redistribution.
Over the past century and more, human experience has revealed two paths for promoting social equality.
One is capitalism’s model of “private ownership plus social security.” This has greatly advanced social equality, but the limitations of private ownership mean that it cannot achieve common prosperity.
Between 1883 and 1889, Germany established a social insurance system suited to industrial society through legislation on medical, workplace injury, and pension insurance. This marked the beginning of modern social security. Its establishment improved workers’ welfare, substantially eased labor–capital tensions, and created favorable conditions for Germany’s rapid rise. After the Second World War, Britain took the lead in establishing a welfare state, followed by other Western and Northern European countries. European welfare states continue to maintain relatively high levels of social equality, closely connected with the establishment and improvement of their social security systems.
The other path is socialism’s model of “public ownership plus social security.” This can address social inequality at its roots and ultimately achieve common prosperity. Public ownership of the means of production allows fairness and efficiency to be reconciled in primary distribution. It can ensure not only that people receive income from work, but also that workers share in the fruits of production. Combined with social security’s pursuit of fair and reasonable distribution, “public ownership plus social security” creates greater possibilities for common prosperity in both production and distribution.
3. The effects of social security development abroad on social equality
The Gini coefficient is an important measure of income inequality in a country or region: the lower the coefficient, the more equal the distribution of national income.
According to the latest statistics from the Organisation for Economic Co-operation and Development (OECD), the average Gini coefficient across OECD members is 0.47 before redistribution and 0.32 afterward. The average redistributive effect of taxation and social security is therefore 32%.
For individual countries:
Finland’s Gini coefficient falls from 0.52 before redistribution to 0.28 afterward, a redistributive effect of 47%.
France’s falls from 0.52 to 0.30, an effect of 42%.
Germany’s falls from 0.50 to 0.31, an effect of 38%.
The United Kingdom’s falls from 0.52 to 0.37, an effect of 30%.
Even in the United States, widely regarded as having substantial income polarization, taxation and social security reduce the coefficient from 0.51 to 0.39, an effect of 22%.
Overall, welfare states generally have lower Gini coefficients, largely because of their relatively high public social expenditure.
Primary distribution operates according to market logic and an emphasis on efficiency. Differences in individual endowments, opportunities, and capabilities inevitably produce unequal earnings. The participation of capital, technology, and other factors of production in distribution further widens income gaps. The effectiveness of a country’s social security system directly determines whether disparities between rich and poor can be contained.
At the same time, some Latin American countries offer profound historical lessons about the failure to control income polarization because of ill-advised social security reforms.
In 1981, Chile’s Pinochet government privatized public pensions, replacing the traditional pay-as-you-go system with fully funded individual accounts. Peru, Argentina, Bolivia, and other countries subsequently followed suit. These reforms, which departed from the principle of mutual assistance and risk pooling, produced a series of problems.
First, income inequality remained persistently high. Before 2005, the Gini coefficients of Chile, Argentina, Bolivia, Peru, and other countries remained above 0.50 for extended periods. Although Chile’s coefficient has now fallen below 0.50, taxation and social security reduce it only from 0.49 before redistribution to 0.45 afterward—a redistributive effect of less than 9%. Research has found that Latin American social security systems tend to favor the wealthy. High-income earners and workers in formal employment are generally covered, while social security expenditure and government subsidies also flow mainly to the better-off.
Second, benefit levels declined and failed to meet citizens’ basic living needs. Statistics show that between 2007 and 2014, Chile’s individual-account pensions had a replacement rate of 34%. When combined with the solidarity pension introduced in 2008, the replacement rate was 45%, well below the OECD average.
Third, public dissatisfaction with the pension system triggered social unrest. Chile experienced repeated large-scale protests against public pension privatization, with demonstrators demanding a return to pay-as-you-go public pensions. Under political pressure, half of the Latin American countries that had privatized public pensions fully or partially abolished their funded systems. Even Chile, once presented as a model of pension privatization, had to establish a noncontributory solidarity pension to address the risk of poverty in old age.
These experiences show that countries with more comprehensive social security systems allocate a larger share of resources to collective provision, have smaller wealth gaps, and achieve greater social equality. Countries with less developed social security systems and more privatized components allocate a smaller share to collective provision and experience greater inequality and lower social equality. This further demonstrates the important influence of social security on wealth distribution and provides both lessons and warnings for China’s pursuit of common prosperity.
II. Social Security’s Role in China’s Progress Toward Common Prosperity
China’s social security system began to take shape after the founding of the People’s Republic. During the planned-economy period, a comprehensive system was established on the basis of public ownership, greatly improving public welfare and social equality.
Since reform and opening up, social security has shifted from a “state–work unit” model to a “state–society” model suited to a market economy. China has gradually built the world’s largest social security system, making it a basic channel and institutional guarantee through which all people share in national development.
The basic experience accumulated through social security’s contribution to poverty alleviation and the building of a moderately prosperous society also provides methodological guidance for future progress toward common prosperity.
1. Social security has become a fundamental institutional arrangement for sharing the fruits of national development
Since the 18th CPC National Congress, China has made promoting social fairness and justice and improving people’s well-being the starting point and ultimate objective of its efforts, significantly accelerating the development of social security.
First, coverage has continued to expand. At the end of 2025, 1.08 billion people were enrolled in basic pension insurance, including 550 million in basic pension insurance for urban employees and 530 million in basic pension insurance for urban and rural residents. More than 320 million people were receiving benefits.
Basic medical insurance covered 1.33 billion people, including 390 million in employee medical insurance and 940 million in resident medical insurance. Unemployment, workplace injury, and maternity insurance covered 250 million, 310 million, and 260 million people, respectively.
In addition, 5.95 million people received urban minimum living allowances, 33.4 million received rural minimum living allowances, and 4.45 million received assistance and support for rural residents in extreme difficulty. Temporary assistance was provided on 23.99 million occasions during the year. A total of 8.13 million veterans and other eligible recipients received regular state pensions or living allowances.
Second, benefit levels have steadily increased. Basic pensions for retired enterprise employees have been raised continuously since 2005. Their average monthly basic pension nationwide has more than doubled compared with 2012.
The national minimum basic pension for urban and rural residents rose from 55 yuan per person per month at the system’s inception to 163 yuan in 2026—an increase of nearly 200%.
In 2025, employee and resident medical insurance funds covered 84.1% and 66%, respectively, of inpatient expenses within the covered benefits schedule.
Average urban and rural minimum living allowance standards reached 832 yuan and 621.2 yuan per person per month in 2025—2.5 and 3.6 times their respective 2012 levels. The rural standard increased substantially faster than the urban standard.
Benefits under other social security programs have also continued to grow, showing that the share of national development gains received through social security is steadily increasing.
Third, the range of programs has continued to expand. In July 2025, the General Offices of the CPC Central Committee and the State Council issued the Implementation Plan for the Childcare Subsidy System, establishing a national basic subsidy of 3,600 yuan annually for each child under three. This marked the establishment of a unified national child allowance system and sent a strong signal in support of children’s welfare.
In March 2026, the two General Offices issued the Opinions on Accelerating the Establishment of a Long-Term Care Insurance System. This marked the transition of long-term care insurance from local pilot programs to a new stage of establishing a unified national system. It is a key institutional arrangement for responding proactively to population aging and relieving concerns about care for people who lose the ability to care for themselves, as well as an important step in improving the social insurance system.
Without public pensions, more than 300 million older people could fall into poverty. Without medical security, high treatment costs would remain a persistent cause of poverty. Without social assistance, low-income groups could lose the means to support themselves. Without other social security programs, people’s quality of life could not be effectively protected.
China’s development experience therefore demonstrates that social security is a basic means of relieving people’s worries about their livelihoods and enabling them to share in national development.
2. Social security provided important support for poverty eradication and the building of a moderately prosperous society
Building a moderately prosperous society in all respects is an initial stage in achieving common prosperity, while winning the battle against poverty was its minimum essential task.
By the end of 2020, China had achieved its poverty alleviation goals on schedule. All 98.99 million rural residents classified as poor under the 2011 poverty standard had been lifted out of poverty; all 832 impoverished counties had shed that designation; and all 128,000 impoverished villages had been removed from the poverty list. Poverty affecting entire regions had been eliminated.
Social security played an extremely important safety-net role in eliminating absolute poverty.
During the poverty alleviation campaign, the main assessment criteria were income and the “two assurances and three guarantees”: adequate food and clothing, and access to compulsory education, basic medical care, and safe housing. Basic medical protection was one of the three guarantees.
This goal was fully achieved. People living in poverty were brought within the three-tier protection framework of basic medical insurance, critical illness insurance, and medical assistance. More than 99.9% were enrolled in basic medical insurance, substantially addressing difficulties in accessing and affording treatment.
Between 2018 and 2020, medical insurance poverty alleviation policies subsidized basic medical insurance enrollment for people in poverty on a cumulative 230 million occasions, reducing individual contribution burdens by 40.3 billion yuan. They supported medical treatment on 500 million occasions and reduced medical expenses by 350 billion yuan, effectively lowering the risk of falling or falling back into poverty because of illness.
In addition:
Rural minimum living allowance standards in impoverished counties all exceeded the national poverty threshold.
Some 19.36 million people in poverty received rural minimum living allowances or assistance and support for people in extreme difficulty.
Some 60.98 million people in poverty enrolled in basic pension insurance for urban and rural residents, achieving near-universal coverage among eligible people.
Average monthly support standards for orphans in institutions and those living outside institutions reached 1,611.3 yuan and 1,184.3 yuan, respectively.
Some 253,000 children effectively without parental care were included in support programs at local orphan-support standards.
Subsidies for financially disadvantaged older people, including those of advanced age or with care needs, benefited 36.89 million people, significantly improving support for older people in poverty.
More than 7 million people with disabilities were lifted out of poverty.
More than 24 million benefited from living allowances for financially disadvantaged people with disabilities and care subsidies for people with severe disabilities.
Some 10.667 million people with disabilities received minimum living allowances.
All people with disabilities living in poverty were covered by basic medical insurance and critical illness insurance, and 547,000 received medical assistance.
Social security is therefore the most direct mechanism for preventing and reducing poverty, and it made an important contribution to winning the battle against poverty.
Following the completion of a moderately prosperous society, some disadvantaged groups still cannot escape poverty through their own efforts alone. To consolidate and expand poverty alleviation achievements while effectively linking them with rural revitalization, social security continues to provide a safety net against large-scale returns to poverty and support the movement of low-income groups into the middle-income group.
In 2025, net transfer income per capita nationwide was 8,080 yuan, accounting for 18.6% of disposable income. Social security income is a major component of household transfer income. Among residents who have attained a moderately prosperous standard of living, pensions have become the main source of income for older people, while medical reimbursements reduce the burden of large medical bills on patients and their families.
Social security is thus a foundational and supportive institutional arrangement for building a moderately prosperous society, and it has laid a solid foundation for advancing common prosperity.
3. Basic lessons from social security’s contribution to common prosperity
The major contribution of social security to building a moderately prosperous society—and its continuing role in achieving common prosperity—is closely related to the Party and government’s commitment to people-centered development and shared development. It also reflects the institutional advantages of socialism with Chinese characteristics.
First, uphold a people-centered development philosophy and incorporate shared development throughout the construction of the social security system.
Since the 18th CPC National Congress, the CPC Central Committee with Xi Jinping at its core has established a people-centered development philosophy and a new concept of shared development. It has made people’s aspirations for a better life the Party’s goal and sought to ensure that the fruits of national development benefit everyone more fully and fairly.
Guided by this philosophy, the CPC Central Committee has given social security a more prominent position. Its strategic status has been fundamentally elevated, making it a major issue in national governance.
In recent years, social security development has accelerated. Basic pension insurance enrollment grew from 790 million in 2012 to 1.08 billion in 2025. Basic medical insurance coverage has remained above 95%. Social assistance has sought to reach everyone eligible, and a wide range of social welfare programs has been rolled out.
On the new journey toward common prosperity, shared development must be incorporated into both the top-level design and practical implementation of every social security program. The development orientation in China’s 15th Five-Year Plan—“closely combining improvements in people’s well-being with the promotion of consumption, and investment in physical assets with investment in people”—essentially deepens the people-centered development philosophy and the concept of shared development.
Second, draw on the institutional advantages of socialism with Chinese characteristics to expand coverage rapidly through broadly accessible public investment.
A fundamental reason China was able to establish the world’s largest and functionally comprehensive social security system in a relatively short period is its institutional capacity to mobilize large-scale, broadly accessible public investment under government leadership.
The new rural social pension insurance system rapidly expanded coverage when it was introduced because the government fully funded the basic pension for eligible participants. The central government provided the full subsidy in central and western regions and a 50% subsidy in eastern regions.
The same applies to medical security. Government subsidies account for the leading share of funding for resident medical insurance. Per-person subsidies have continued to increase, reaching a minimum of 700 yuan annually in 2025.
Central and local government spending on minimum living allowances, support for people in extreme difficulty, temporary assistance, and other social assistance programs has also continued to rise.
Without strong public investment, universal basic pension insurance coverage would not have been possible, universal medical insurance could not have been achieved, and social assistance could not have fulfilled its safety-net function.
This capacity for large-scale, broadly accessible public investment, rooted in institutional advantages, is a distinctive feature separating socialism with Chinese characteristics from capitalist systems. It is also a fundamental guarantee for continuously improving social security and advancing common prosperity.
Third, maintain nationwide coordination and concentrate resources on major tasks to generate institutional synergy for common prosperity.
Nationwide coordination and the ability to concentrate resources on major tasks are strengths of China’s governance system and create favorable conditions for advancing common prosperity.
During the poverty alleviation campaign, the CPC Central Committee established an administrative framework in which “the central government coordinates overall efforts, provincial governments assume overall responsibility, and cities and counties implement the tasks.” It also developed a three-in-one framework combining dedicated poverty alleviation programs, sector-specific poverty alleviation, and social participation.
This created a comprehensive mobilization system involving central and local governments at every level, developed eastern regions and poorer central and western regions, Party and government bodies, industries, departments, and social organizations.
Dedicated poverty alleviation funds from central, provincial, municipal, and county governments totaled nearly 1.6 trillion yuan, including 660.1 billion yuan from the central government. Nine eastern provinces and municipalities provided more than 100.5 billion yuan in fiscal aid and other assistance to partner regions. Enterprises from eastern regions invested more than 1 trillion yuan in those regions.
Despite the shock of COVID-19 in 2020, the CPC Central Committee did not waver in its determination to meet the poverty alleviation targets on schedule. It continued the campaign with greater effort, more investment, and more effective measures.
This coordinated national effort transformed impoverished regions within a short period. Such a capacity to concentrate resources on major tasks is difficult for other developing countries to achieve and difficult for developed countries to replicate. It will continue to play an irreplaceable role in China’s future progress toward common prosperity.
III. General Approaches to Optimizing Social Security from the Perspective of Common Prosperity
Although China has made major advances in building its social security system, there is still a long way to go before common prosperity is achieved.
China has now entered a critical window for optimizing its existing system. From the perspective of common prosperity, this requires a combined effort to reshape underlying principles, unify systems, increase investment, and strengthen the rule of law.
1. Reshape the principles underlying the social security system
Principles take precedence over institutions, and institutions over technology. Only sound principles can produce reasonable and reliable institutional arrangements, which in turn allow advanced technology to be used effectively.
The root cause of shortcomings in the quality of the current social security system lies in longstanding deviations in its founding principles. Optimizing social security must therefore begin by reshaping those principles and using sound ideas to guide high-quality development.
Social security is a national institutional arrangement grounded in mutual assistance and risk pooling. It promotes social equality through legally mandated sharing and is closely connected with national identification and collective consciousness. It is neither a market transaction nor privatized individual accumulation.
Making solid progress toward common prosperity requires a greater degree of sharing within social security. The level to which social security develops also indicates how far common prosperity has advanced.
It is therefore necessary to abandon a banker’s mindset and a contracting-out mindset in social security design, remove privatizing and marketizing elements, and ensure that the system is oriented toward common prosperity for all. It must play a substantial role in promoting social fairness and narrowing income disparities.
A gradual approach must be maintained: doing everything possible while acting within available means, so that people’s benefits improve year by year. Different programs should proceed at different speeds according to need and feasibility.
The role of social security in national economic and social development must also be reassessed. “Dividing the cake well” through social security has already become a prerequisite for further “making the cake bigger.” Social security should therefore not be viewed as a fiscal burden or an obstacle to competitiveness, but as a source of sustained economic growth and a concrete foundation for substantive progress toward common prosperity.
2. Promote fairness through a unified social security system
Promoting and safeguarding social fairness is the core value of social security. A system that cannot promote fairness is not a good institutional arrangement.
The goal of common prosperity places higher demands on fairness, and institutional unification is a basic path toward achieving it.
Fairness shortcomings in the current system mainly appear in three dimensions.
First are disparities between groups. In 2025, average monthly per-person expenditure from the basic pension insurance fund for urban employees was 3,900 yuan, compared with 276 yuan from the basic pension insurance fund for urban and rural residents—a ratio of more than 14 to one. Within the employee pension system, substantial differences also remain between employees of government bodies and public institutions and enterprise employees.
Second are regional disparities. Shanghai’s minimum living allowance reached 1,650 yuan per person per month in 2025, while standards in most central and western provinces were less than half that level.
Third are urban–rural disparities. Although significant progress has been made in integrating urban and rural social security, benefit differences persist. Pension protection for rural older people remains far below that for urban older people, and rural residents also receive lower levels of medical protection.
If these disparities are not acknowledged and addressed, social security may not only fail to promote common prosperity but instead entrench or even widen income gaps between groups, regions, and urban and rural areas.
Because all social security programs exhibit regional and group differences, institutional unification is needed to improve fairness in line with the requirements of common prosperity.
First, raise the level at which systems are pooled and coordinated. China’s 15th Five-Year Plan explicitly calls for:
“Improving and implementing nationwide pooling of basic pension insurance, largely achieving provincial-level pooling of basic medical insurance, and consolidating provincial-level pooling of unemployment and workplace injury insurance.”
National pension pooling should move as quickly as possible toward unified national policies and centralized collection and disbursement of funds, together with a reasonable division of responsibilities between central and local governments.
Provincial medical insurance pooling should be based on uniform policies and benefits within each province. A central adjustment fund should also be established to address imbalances between provinces.
Second, integrate separate systems. Substantive alignment between basic pension insurance for employees of government bodies and public institutions and that for enterprise employees should proceed steadily, eliminating large differences in actual benefits.
When conditions are appropriate, employee and resident medical insurance should merge into a single system, with one system covering the entire population and one fund protecting all patients.
Primary responsibility for social assistance should move from the county to the provincial level.
Third, establish a unified benefits-list system. Authority to formulate policies for statutory basic protection should be centralized at the national level. Local governments may develop supplementary protection but should not modify basic protection policies. This would help reduce uneven standards and policy fragmentation.
3. Increase social security investment to better “invest in people”
The new development concept of “investing in people” has been formally incorporated into the 15th Five-Year Plan. Its essence is to increase public investment in people’s livelihoods so that the fruits of national development benefit everyone more fully and fairly, thereby advancing common prosperity.
Increasing public investment in social security and strengthening its financial foundation are central to implementing this orientation. They are also prerequisites for fully realizing social security’s redistributive function.
China’s social security system has a relatively weak financial foundation, and the share of resources devoted to public investment needs to rise.
In 2024, public social expenditure averaged 21.2% of GDP across OECD countries. Calculated on an approximately comparable basis, China’s public social expenditure was 13.2% of GDP, substantially below the OECD average.
Although the absolute amount of fiscal spending on social security has continued to grow, such spending accounted for 16.6% of total government expenditure in 2021. This indicates that fiscal investment in social security remains relatively low.
The insufficient share devoted to collective provision constrains redistribution. Across OECD countries, taxation and social security reduce relative poverty rates by an average of more than 50% and reduce pre-redistribution Gini coefficients by an average of more than 30%.
By comparison, China’s taxation and social security systems remain insufficiently effective in adjusting the Gini coefficient. Moreover, pension and medical insurance contributions have not narrowed income disparities but have instead widened them.
Greater public investment in social security is needed to better achieve the goals of investing in people and common prosperity.
First, set clear investment targets. Using current OECD or European Union averages as reference points, China could aim to raise social security expenditure to approximately 20% of GDP by 2035 and 30% by 2050. Fiscal social security spending could rise to approximately 40% and 50% of total government expenditure at those respective dates. This would effectively relieve people’s worries about their livelihoods and steadily increase household transfer income.
Second, improve the structure of spending. Between 2018 and 2021, nearly 70% of fiscal social security spending went to social insurance, around 7% to social assistance, around 6% to preferential support for eligible groups such as veterans, and around 4% to social welfare. This structural imbalance urgently needs correction.
Fiscal investment in social assistance and social welfare should increase. At the same time, the government’s fiscal responsibility for social insurance should shift from serving as a residual backstop to sharing costs according to a defined proportion, improving the efficiency of resource allocation.
Third, broaden funding channels. The 15th Five-Year Plan explicitly calls for “strengthening and improving the strategic social security reserve fund and continuing to transfer state-owned capital to replenish social security funds.” This is an important way to strengthen the financial foundation of social security.
Other possible channels include collecting a portion of state-owned enterprise profits, introducing appropriate taxes, and issuing special long-term government bonds.
4. Accelerate the development of a law-based social security system
Adherence to the rule of law is a common feature of social security development internationally and an important indicator of institutional maturity.
The experience of welfare states shows that social security rests on a legal foundation: rights and responsibilities are defined by law, implementation is legally enforced, and citizens’ statutory entitlements are protected, creating clear and stable expectations.
A high-quality social security system must be supported by a comprehensive legal framework. China’s current system, however, is regulated primarily through policy documents. Legislation and legal revision must therefore accelerate across the board.
On the one hand, legislative gaps in eldercare services, children’s welfare, and other areas should be filled promptly. Regulations supporting the Medical Security Law should be introduced as soon as possible, and foundational laws such as an Eldercare Services Law and a Children’s Welfare Law should be developed more quickly.
On the other hand, the Social Insurance Law of the People’s Republic of China has fallen seriously behind practical developments and should be revised without delay.
This revision should also provide an opportunity to update the Regulations on Unemployment Insurance, Regulations on Workplace Injury Insurance, Interim Regulations on the Collection and Payment of Social Insurance Contributions, and Regulations on Social Insurance Administration, as well as to formulate regulations on long-term care insurance and related legislation.
Only by bringing all social security programs fully within a law-based framework can shared development receive institutional guarantees.
IV. Priorities for Optimizing Social Security to Advance Common Prosperity
In light of the practical requirements of common prosperity, reform should concentrate on four key areas: pensions, medical security, social assistance, and services for older people and children.
These areas encompass the issues of greatest immediate concern to the public and perform essential functions in narrowing disparities, securing minimum living standards, and improving well-being.
The overall orientation should be to strengthen support for those with low benefits and vulnerable groups: provide greater assistance wherever protection is inadequate and continually narrow disparities wherever benefit gaps are large.
1. Optimize pensions and narrow differences between groups
Pensions are the institutional cornerstone of income security in old age. They are also the social security program with the most pronounced benefit disparities.
Pension reform oriented toward common prosperity should follow the principle of raising low benefits and restraining high ones. Narrowing differences between groups should be a central priority, producing a two-tier structure:
Fairness-based basic pensions plus supplementary pensions for those who need them.
First, substantially increase farmers’ basic pensions and use social security to compensate for the historical debt owed to them.
During China’s industrialization and urbanization, farmers made enormous contributions to national industrial development through unfavorable price differentials between agricultural and industrial products, unpaid compulsory labor, and other means. These contributions were an important source of accumulated state-owned assets.
However, because basic pension insurance for urban and rural residents was introduced relatively late and contribution levels are low, farmers’ pensions have remained inadequate. Older farmers, especially those of advanced age, lack sufficient protection in later life.
A rational, gradual, and differentiated approach should therefore be adopted, identifying those within the resident pension system who are genuinely farmers.
For older generations of farmers, basic pensions should increase by age group, with larger increases for older recipients. Dedicated fiscal investment and transfers of state-owned assets should address their inadequate pensions.
For current and future generations of farmers, participation and contributions should be encouraged, with the government and collective economic organizations sharing contribution responsibilities so that pension levels rise steadily.
Second, narrow pension disparities between employees of government bodies and public institutions and enterprise employees.
Although these pension systems have been aligned at the institutional level, actual benefit disparities remain large.
Employees of government bodies and public institutions generally receive both a basic pension and an occupational annuity. Their combined pension replacement rate exceeds 80%, far above that of enterprise employees.
The basic pension replacement rate for employees of government bodies and public institutions should therefore be reduced to approximately 50%, matching that of enterprise employees.
At the same time, enterprise annuity policies should be improved and implemented more rapidly, expanding participation from a minority to a majority of workers and materially improving retirement incomes for enterprise employees.
Third, strengthen mutual assistance and risk pooling in public pensions and eliminate the negative effects of privatized elements.
The essence of public pensions is mutual assistance and risk pooling, with the aim of promoting social fairness and meeting older people’s basic living needs.
Individual accounts in the current system, and the associated market-transaction logic of “the more one contributes, the more one receives,” conflict with the public character of public pensions. The painful experience of Chile and other countries has demonstrated the problems.
Legislation should remove the private-property character of basic pension insurance accounts, treat them as bookkeeping entries, and separate them from inheritance.
It should also clearly establish pay-as-you-go financing for basic pension insurance funds, with the goal of balancing annual revenue and expenditure while maintaining a modest overall surplus.
This would avoid the risks of fund depreciation and investment, simplify administration, and restore public pensions to their proper institutional role of promoting fairness.
2. Optimize medical security and effectively relieve worries about illness
Medical security concerns everyone’s right to health. It is the social security field with the broadest coverage and the closest connection to daily life.
Although China established a medical insurance system covering the entire population within a relatively short period, the situation in which residents face relatively high out-of-pocket expenses and remain worried about major illnesses has not fundamentally changed.
Reform should achieve breakthroughs in five areas.
First, make effectively relieving everyone’s worries about medical treatment the guiding objective, and replace caps on fund payments with caps on patients’ out-of-pocket expenses.
The current medical insurance system follows the principle of determining expenditure according to revenue. Fund payments are capped, and patients must bear costs above the ceiling.
Although this design helps contain payment risks for the fund, it cannot fundamentally address the high expenses associated with serious illness.
A reasonable reform direction is to replace the ceiling on fund payments with a ceiling on personal out-of-pocket expenses. Rather than limiting the amount reimbursed by the fund, the system should limit the amount patients must pay themselves, giving people clear and stable expectations.
The maximum out-of-pocket share of medical expenses could initially be set at 20% and gradually reduced to 10%. At the same time, an absolute ceiling on out-of-pocket expenses should be set according to household income and ability to pay.
Correspondingly, the system should gradually shift from “determining expenditure according to revenue” to “determining revenue according to expenditure.” Funding should be based on the actual resources required to relieve people’s worries about illness, rather than allowing the amount raised to determine the level of protection.
Second, merge employee and resident medical insurance into one system covering the entire population.
Illness is a risk shared by everyone. Medical insurance benefits should not differ because of employment status.
Employee and resident medical insurance have long operated separately, with substantial differences in funding standards and protection levels.
Their merger should be established as the fundamental direction of future reform. During the 15th Five-Year Plan period, conditions should be created for integration: narrow benefit differences, actively pilot combined operation, and strive to achieve one system covering all people and one fund protecting all patients around 2035.
Third, improve medical insurance financing by shifting resident contributions from equal per-person payments to income-proportional payments and completely abolishing employee medical insurance individual accounts.
Resident medical insurance currently uses a flat per-person contribution: people pay the same amount regardless of income.
This violates fairness in financing and places a growing burden on low-income groups, even prompting some to withdraw from coverage.
Resident insurance participants have widely differing incomes. Contributions should therefore be based on a proportion of individual or household income, aligning payment burdens with ability to pay and creating conditions for increasing individuals’ contribution responsibility.
Employee medical insurance individual accounts should be abolished, with all contributions flowing into the pooled fund and being shared by all insured people.
The use of employee accounts has already expanded to allow mutual support among close relatives, but this is only a transitional adjustment. The ultimate direction remains abolition of individual accounts.
Medical insurance contribution subsidies should also be provided for infants, young children, and older residents of advanced age to ensure equal access to basic medical services.
Fourth, accelerate provincial pooling of basic medical insurance so that residents of resource-poor and less-developed areas enjoy relatively equal insurance rights.
Provincial pooling would fundamentally eliminate benefit differences caused by administrative fragmentation within provinces, enabling residents of disadvantaged areas to receive broadly comparable protection.
A national medical insurance adjustment fund or dedicated subsidy fund should also be established to address imbalances between provinces.
Cross-regional settlement arrangements should be improved to accommodate high population mobility and the increasingly common separation of actual residence from household registration.
Fifth, pursue coordinated reform and governance of medical services, medical insurance, and pharmaceuticals so that fund spending produces tangible benefits.
Medical security does not operate in isolation. Its effectiveness depends on simultaneous reform of healthcare services and pharmaceutical supply.
Without reforms strengthening the public-service orientation of public hospitals, persistent problems such as financing hospital operations through drug sales and overtreatment cannot be fundamentally resolved.
Without stronger centralized volume-based procurement, payment reform, and fund supervision, the benefits of medical insurance spending will be greatly reduced.
The essence of coordinated reform is to reinforce hospitals’ public-service role, remove inflated pharmaceutical prices, and strengthen medical insurance’s strategic purchasing capacity.
Accordingly, public hospital reform should deepen and medical service pricing mechanisms should improve. Centralized volume-based procurement of medicines and medical consumables should become routine and institutionalized. Multiple payment methods centered on payments by disease or diagnosis-related group should be implemented comprehensively. Fund supervision rules should be strictly enforced to safeguard financial security.
3. Improve social assistance and strengthen protection at the bottom
Social assistance is the final safety net in the social security system and a key mechanism for raising minimum protection levels in the pursuit of common prosperity.
China has largely established a broadly covering, tiered and differentiated, urban–rural coordinated, integrated, and efficient social assistance system. However, the number of people covered has been declining year by year.
The system should be improved in the following ways.
First, expand coverage. In 2024, urban and rural minimum living allowances covered only 2.8% of the total population. Urban allowances covered 0.7% of urban residents, while rural allowances covered 7.2% of rural residents.
Social assistance should expand beyond recipients of minimum living allowances and support for people in extreme difficulty to encompass the broader low-income population. Coverage of approximately 10% of the total population would be appropriate.
Particular attention should be given to households just above the minimum living allowance threshold and those experiencing hardship because of unavoidable expenses. This would connect the safety net established during poverty alleviation with support for low-income groups in the common prosperity process.
Some programs could expand eligibility from locally registered residents to all usual residents, ultimately enabling people to apply where they ordinarily live.
Second, establish a benefit adjustment mechanism that rises with general living standards. Assistance standards should be linked consistently and dynamically to per-capita disposable income and local prices. This would ensure that low-income groups share in economic and social development and that assistance keeps pace with common prosperity.
Third, develop service-based assistance. For households whose underlying problems cannot be resolved through cash and goods alone, government-purchased services should provide care, daily living support, and personal support.
Fourth, improve dynamic monitoring and proactive identification. The low-income population monitoring platform should be used fully, shifting from “people seeking policies” to “policies finding people,” so that difficulties are identified and assistance provided early.
Social assistance should also have an enabling function. Earnings disregards should be introduced when assessing eligibility; recipients’ employability should be improved; and flexible employment opportunities should be created to strengthen their motivation and capacity for self-improvement.
Fifth, accelerate improvements to temporary assistance. Assistance should be provided directly where emergencies and hardship occur, allowing it to reach more households and individuals experiencing sudden or temporary difficulties.
4. Strengthen services for older people and children and consolidate the foundations of well-being
Against the backdrop of low fertility and population aging, inadequate services for older people and children have become a widespread public concern.
This is both a prominent weakness in social security and a major livelihood issue that must be addressed in advancing common prosperity.
Eldercare services
China faces population aging of extraordinary speed and scale. At the end of 2025, 320 million people were aged 60 or above, representing 23% of the population. Those aged 65 or above numbered 220 million, or 15.9%.
A timetable and roadmap for eldercare development should therefore be designed in line with the national goal of equalizing basic public services by 2035.
First, accelerate the establishment of a basic eldercare service system. Clearly define its coverage, level of protection, and methods of provision so that all older people who need basic services can access them.
Second, improve policy targeting. Move away from benefits based solely on age toward an approach that uses age as a baseline but care dependency as the main criterion.
Nursing-care beds should become a principal assessment indicator, directing limited public resources toward people who genuinely need them, including care-dependent older people and those of advanced age, while avoiding vacant beds and wasted resources.
Third, extend institutional services to older people living at home. Develop eldercare services embedded in communities and home-based care beds.
Fourth, promote publicly built, privately operated facilities and mutual-aid eldercare models, drawing on traditions of family support and neighborhood mutual assistance as well as the resource advantages of public ownership.
Children’s welfare
China is at a critical point in the transition from a residual model of children’s welfare to a universal one.
For many years, children’s welfare policies focused primarily on children in difficult circumstances. The national childcare subsidy introduced in 2025 was an important step toward universal children’s welfare.
Nevertheless, in view of the serious challenges of low fertility and population decline, institutional development remains insufficient, while the costs of childbirth, childrearing, and education remain persistently high.
During the 15th Five-Year Plan period, China should develop a children’s welfare framework in which services, allowances, and preferential provisions advance together.
Social services supporting children’s physical and mental health should expand. The scope of eligibility for the existing childcare subsidy should gradually widen, and preferential policies for children should be implemented.
A basic children’s services system should be explored, granting all children the statutory right to equal access to basic public services in their usual place of residence.
At the same time, an affordable and broadly accessible childcare service system should develop more rapidly. Nongovernmental providers should be supported in offering diverse, affordable childcare services, effectively reducing families’ caregiving burdens.
Conclusion
Common prosperity is an essential requirement of socialism and an essential feature of Chinese modernization.
Achieving common prosperity for more than 1.4 billion people is a long-term, difficult, and complex undertaking requiring an extended historical process. It must neither be pursued with undue haste nor approached passively. China must do everything possible while acting within its means.
At the new starting point marked by the full launch of the 15th Five-Year Plan, the importance of social security in advancing common prosperity must be fully recognized. Existing institutional arrangements should be comprehensively optimized so that social security truly becomes a pillar of the drive toward common prosperity.