The new social welfare law was passed last October and doesn’t take effect until July 1. But it has already sparked controversy. Authorities in Peking see it as a step towards integration with more developed countries in the West on issues like welfare, rights, and responsibilities. But for those who see China as an unregulated business paradise, the new law is a disaster.
The law represents the first coordinated attempt to fund social welfare in China. In a nutshell, it will require businesses and individuals who live and work in China to pay taxes that will fund pensions, healthcare, unemployment, disability, and maternity leave.
The law will also apply to foreigners who have worked in China for more than six months, and that’s where the controversy comes in. Although local authorities and commentators agree that the law “will guarantee foreign workers the same benefits Chinese workers enjoy” (not to mention the responsibilities), the Wall Street Journal and some people in the business community have jumped on it as an attempt by Peking to make expats pay for their welfare system.
In reality, the nearly 600,000 foreigners who work in China will pay taxes and gain access to the services outlined in the law. There doesn’t seem to be anything particularly unusual in this: an Italian citizen who lives and works in Sweden, for instance, pays into the system in order to receive healthcare and retirement benefits.
There is clearly an ideological undercurrent in the barely concealed annoyance expressed by Western capitalists: healthcare isn’t a right, but a service you pay for; retirement is a matter for private investment. But the real problem seems to lie in translating principles most of us share into the Chinese context and the specific law that resulted.
To begin with, it’s still unclear how much individuals will have to contribute and it appears that local authorities will have a great deal of leeway in defining contribution amounts. It’s not unusual in China for details of a law to emerge only months after it has gone into effect; too much discretion in the hands of local authorities leaves the law open to arbitrary provisions. If contributions for foreigners are analogous to those paid by the Chinese, one calculation estimates that 37 percent of a company’s monthly earnings will go to taxes, and 11 percent of a typical worker’s salary. The blog Shangaiist has defined this in terms of hard cash: businesses could be paying as much as 450 euros a month in contributions for every employee, 130 of which would come out of the employee’s own pocket. But these are estimates; only time will provide concrete figures.
A second objection has to do with pension contributions. The law requires that a foreign worker live in China for fifteen years before being eligible for a pension. Most foreigner workers come to work in the country for shorter, more concentrated periods. So will these workers simply lose what they paid in? Chinese authorities have said that, once the appropriate agreements are in place, years of contribution will continue to accrue even after workers have returned to their home countries.
Then there’s the problem of workers who already have private insurance and benefits in their countries of origin. In these cases, Chinese authorities point to “bilateral social security accords” with individual nations: these already exist with Germany and South Korea.
Finally, there’s some confusion about the quality of services provided. Skeptics ask why they should have to pay for a public health system they don’t think is any good. Of course, Chinese workers could make the same argument and this is the sort of risk you face just about anywhere in the world. Quality of care will be impossible to determine in any case before China gets a universal healthcare system up and running. In other words, Westerners can’t criticize China for failing to conform to our idea of human rights and then continue to attack them when they try to do just that.
But there may be another issue here that critics of the new law aren’t willing to talk about. The fact is that the introduction of social security in China, and the taxes necessary to fund it, will make the country less attractive as a place to outsource production. Higher taxes and higher labor costs—the result in part of recent salary increases in response to demands by workers—run the risk that some companies will pack up and move out in search of some other, cheaper “world factory.”
This is one of the West’s greatest contradictions. For years we’ve complained that our local businesses relocate to China in search of competitive advantages as we lose jobs at home. Now that the Chinese model is changing, we’re afraid of losing the very advantages that drew us there in the first place. The bottom line is that higher taxes and labor costs make China a lot more like us. And we’re not at all sure that’s something we want.
Translated by Gary Cestaro