China’s pension crisis imminent, social security expenditure hits new high.

China’s aging population and declining birth rates have become increasingly serious issues, leading to social security and employment expenses being the largest items in China’s general public budget.

According to the latest statistics from the Chinese Ministry of Finance, social security and employment expenses reached 4.21 trillion yuan in 2023.

In 2024, social security and employment expenses amounted to 4.2114 trillion yuan in the budget, surpassing education expenditure at 4.2076 trillion yuan. This shift reflects the challenges China faces in terms of an aging population and declining birth rates.

In the past, education spending has always exceeded spending in other areas. In 2012, education spending exceeded social security and employment expenses by 862.3 billion yuan.

The rapid growth in social security and employment expenses is mainly due to subsidies for basic old-age insurance funds and retirement expenses for administrative units. With the increasing number of retirees born after the 1960s and adjustments to pensions, these expenses have significantly risen.

Experts and scholars have expressed concern over this phenomenon. Zheng Chunrong, a professor of social security and social policy at Shanghai University of Finance and Economics, stated that while social security spending has been the largest item for many years, its surpassing of education spending for the first time still comes as a surprise. He emphasized that this change indicates the accelerated aging of China’s population.

Zheng Chunrong pointed out that the rapid increase in social security and employment expenses is mainly due to the rapid growth in retirement expenses for administrative units and faster subsidies for basic old-age insurance funds. The underlying reason is the accelerated aging of China’s population, the rapid growth of retirees born after the 1960s, and pension adjustments leading to increased expenses.

Luo Zhiheng, Chief Economist at Yuekai Securities, believes that the exceeding of social security expenditure over education expenditure is an inevitable result of demographic changes. He stated that the growing elderly population requires more pension spending, while the decline in the number of children necessitates adjustments in education funding and resource allocation.

According to the China Statistical Yearbook 2024, the population aged 65 and above in China reached 216.76 million in 2023, accounting for 15.4% of the total population, with an elderly dependency ratio of 22.5%. By international standards, when the population aged 65 and above reaches 14% to 21%, society is considered moderately aged. This statistical data further highlights the social challenges China is facing.

The sharp decline in the number of newborns, rapid aging, and increasingly tight young workforce are posing serious challenges to China’s vast social security fund system. In an article published on August 19th last year in the Communist Party Central Party School organ “Study Times,” Ding Xuedong, Secretary of the Party Committee of the China Social Security Fund, acknowledged that China has entered a moderately aged stage and is expected to enter a heavily aged stage around 2035 and will continue for a considerable period.

The alarm bells for the potential collapse of China’s social security fund were first raised by the Chinese Academy of Social Sciences. In April 2019, this official research institution released the “China Pension Actuarial Report 2019-2050,” which predicted that by 2028, the current pension balance may first fall into negative territory, with a gap of 118.13 billion yuan. By 2035, the pension fund may be exhausted, depleting the accumulated balance completely.

The report states that by then, the post-80s generation will not have reached retirement age, meaning that there will be no money to be received when this group retires.

The report also predicts that over the next 30 years, the ratio of workers supporting retirees will double, and the pressure on pension payments will continue to increase. From having nearly two contributors supporting one retiree in 2019, it is projected that by 2050, almost one contributor will need to support one retiree.

Independent commentator Cai Shenkun believes that based on the current pension income-to-spending ratio, by 2035, the pension fund will definitely be unable to continue due to China’s serious aging problem. This is something the Chinese Communist Party authorities had not previously anticipated. If measures are not taken to plug the holes in the pension fund, the post-80s generation will be unable to receive pensions.