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China's Next Big Reform Project
Summary:After years of discussion, the central government has finally committed to pushing ahead with reform of China's quasi-government institutions. The reform will effect the incomes and pensions of over 30 million people.

By Zhang Xiangdong
News, page 3, Issue 515
April 18, 2011
Translated by Tang Xiangyang
Original article:

In March this year a set of draft guidelines outlining future reforms that will reshape China's 1.2 million "public institutions" or (事业单位 shiye danwei)* over the coming five years, were circulated internally among China's central government ministries.

Aside from providing a detailed timetable for the remolding of these public institutions into distinct new categories, the plan also offered a clear direction for how employees of these quasi-government institutions will be paid and insured in the future. At the center of these pay reforms is a plan to gradually shift such employees away from employee-specific pension schemes over to the universal social security system.

Additionally, the project to link the salaries of those working in public institutions to their performance, will also be accelerated.

According to an unnamed source, these three reforms (reclassification, pay reforms and pension reforms) will all be carried out simultaneously.

Simultaneous Reform

According to the draft guidelines that were circulated in March and officially released in June, the central government will complete the categorization of all existing public institutions by 2015 and by 2020 establish a system for managing and operating a public service system with Chinese characteristics.

Generally speaking, public institutions will first be classified into three main types and then reformed according to their classification.

Institutions that are involved in carrying out government functions (参照公务员类) will gradually be integrated into existing government institutions or closed down.

Those organizations that are self-supporting (自收自支), like research institutes and publishing houses, will be pushed to enter the market.

Those public institutions that provide public services but rely on the support of government in order to function (财政补贴), will be reformed so that their regulatory roles will be separated off from their service-provision roles (管办分离) - which will effect everything from the way such institutions manage and insure their employees, share profits, pay tax and other factors including the way such institutions are structured.
Cheng Enfu (程恩富), a scholar with the Chinese Academy of Social Science's Marxism Research Institute, told the EO that there was nothing essentially wrong with the move to push ahead with such a reorganization of public institutions, however he urged authorities to make sure that enough attention is paid to monitoring the post-reform situation. The number of public institutions that provide public services should not be reduced too dramatically, if that were to happen, many things would no longer be able to be provided.

That’s no exaggeration. According to the Ministry of Human Resources and Social Security, there are currently over 1.2 million public institutions employing 30 million people in China, among whom, skilled-professionals account for 20 million, which is a whopping 47.3 percent of all skilled-professionals working in China.

The guidelines explicitly state that the central government plans to push ahead with an initiative to pay employees according to certain performance-based indicators, noting the need to "continue to implement and improve the performance-based pay reforms in public institutions," the guidelines also go on to say that the central government will "deepen reforms of the income distribution system and improve the mechanisms for adjusting employee wages according to a standardized system in public institutions."  

From what the EO has learned, aside from those working in the areas of compulsory education and basic health services, the exact nature of the reforms to the wage structure and pension plans of employees will depend on which kind of public institution they work for.

As for the reform of the pensions of the employees of public institutions, the guidelines say that a social security system independent of the employer will gradually be established, such a system will rely on various financial sources and be capable of providing various levels of service.

The basic pension of employees currently working for public institutions will likely combine elements of the public social security system and a personal account with contributions from their employer and from their own pay packet. An individual pension fund account will be opened for each employee, in addition a basic state pension will also be provided by the provincial government.

To sustain the current level of cover, the pensions of older employees will be managed according to the existing system (老人老办法), newcomers will join the new system (新人新制度), while mid-career employees will gradually have their accounts transferred to new system (中人逐步过渡).
Points of Disagreement

According to what the EO has learned, the areas of wage and pension reform have long been a source of tension when it comes to reform of public institutions.

Plans to alter how the wages of employees are calculated, namely altering the proportion of an employee's pay that is not provided as the base salary but rather awarded according to work performance, are also the source of much of the current debate about the reforms.

According to Cheng Enfu, the Marxist scholar from CASS quoted above, an earlier plan released at the start of 2010, involved altering the pensions of employees of public institutions, while maintaining the often generous support given to those who are officially employed as public servants.

This caused much dissatisfaction among those professionals employed by public institutions and many predict that this tension could lead to delays in pushing ahead with the reforms.

Cheng Enfu said, with national fiscal revenue increasing, the government should let all people share the achievements of economic development. It doesn’t conform to the principles of "scientific development" for the pensions of intellectuals to be reduced.

Additionally, any reform of the pension system should also take note of people’s opinions, or at the very least, solicit their suggestions - this reform has already been opposed for two years.

In Mr Cheng's view, if the Ministry of Human Resources and Social Security continue with this project, it will only arouse even more resentment.

The Chinese Academy of Social Science (CASS) is one of the institutions that has already been piloting such pension reforms. However, the view from outside the central government think-tank, is that the results of the pilot have not been good.

It’s said that in early 2010, CASS submitted an internal report to the State Council outlining both opposition and constructive criticism of the pension reform plan.

Cheng Enfu argues that many parts of the current reform plan are unreasonable.

"Firstly, it's not scientific to talk of ‘performance-based pay’ in relation to public institutions engaged in providing public welfare services. Middle schools and primary schools offering compulsory education operate purely in the interest of the public, they are not enterprises, how can they perform?"

"If we want to reduce the pensions of employees of public institutions, why not reduce the pensions of the public servants?"

"The wage and pension reforms should be carried out at the same time in the public service -  if we change, we should change at the same time, if you want to reduce pension, we should reduce them together."

Cheng Enfu recently discovered that the method used to calculate the pension contributions of public servants is different from that used to work out the pension contributions of people employed by public institutions.

Under the Sunshine Wage System (在阳光工资制度), the pension of a public servant is calculated according to their total income, while that of university professors is based on their base salary. According to Cheng, if this goes on, then public servants are already getting a better deal than others.

On viewing the central government’s guidelines on the reform of public institutions, people responsible for the day to day running of public institutions affiliated with various central government ministries have told the EO that they are far from optimistic.

As one anonymous source told the EO, “Over the past few years, they've been "crying wolf" over these public institution reforms one too many times, people have heard it all before, but there is seldom any real reforms. Public institutions impact on too many other things and it's too complicated. For example, the pension fund of the various public institutions across the country are a huge mess. Where do we start reforming from?

* It's very difficult to pin down just what exactly a public institution is, one of the best descriptions we could find online is available in a 2005 World Bank report  titled - Deepening Public Service Unit Reform to Improve Service Delivery (PDF). A 2005 publication from the OECD called Governance in China also has a chapter on what it calls China's public service units or PSU. The first article in the Jan 2004 edition of The International Journal of Civil Society Law published by Columbus Law School also provides more details.

Timeline: Reforming China's Iron Rice Bowl

1995 - Initiated Reforms of Public Institutions
Launched reforms aimed at shaking up the hiring at personnel management system at public institutions

2006 - Income Distribution Reforms
Introduced reforms aimed at shaking up the wage system in public institutions, introduced performance-linked salaries

2009 - Pilot Project of Pension Reforms
The country unveiled a plan to reform the pension system, introduced pilot projects in Shanxi, Shanghai, Zhejiang, Guangdong and Chongqing

2012 - Nationwide Open Hiring System
By 2012, China plans to have all levels of public institutions operating across the country operating an open hiring system

2015 - Classification of Public Institutions
From 2011-2015, China will complete the classification of all public institutions

2020 - New Management System
By 2020, establish a system for managing and operating a public service system with Chinese characteristics.

Links and Sources
The Beijing News: 事业单位分类2015年完成 (timeline)
Dongguan Government: Image

This article was edited by Paul Pennay


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