The Social Insurance Law, which became effective on July 1, creates a national unified social security system designed to increase labor mobility within China. The new law contains important provisions that allow workers to transfer accrued rights from one program to another, cover foreign workers, and expand coverage to new segments of the urban and rural populations. However, the new law leaves many details to be resolved eventually through regulations; a timetable for finalizing regulations remains unclear.

Social security in China presently is governed by a national framework for workers in urban areas (pensions for old age, disability, and survivors; medical insurance; unemployment insurance; maternity benefits; and workers' compensation), but specific contribution rates and benefit provisions vary by city and/or province. The new law applies to employers and all individuals working in China. Individuals will be able to transfer their accrued rights to a social security pension and to medical and unemployment insurance benefits when moving from one province or city to another. As a result, individual participation in each local program is taken into account when calculating all years of service for any program nationally, regardless of where it took place.

The extension of social security coverage to foreign workers went into effect but without the benefit of implementing regulations, which could be several months away. An interim draft measure issued on June 10 did not clarify many issues, prompting some municipalities, notably Beijing and Shanghai, to issue their own regulations. Under the law, foreign workers are allowed to withdraw their own contribution amounts when permanently leaving China.

In implementing the new law, China's government also decided to accelerate the timing (from 2020 to 2013) of programs intended to expand basic pension coverage. To achieve this, the government adjusted its target for the rural pension pilot program (launched in 2009) from 40 per cent to 60 per cent coverage by the end of 2011, and it also introduced a new program for previously uncovered unemployed urban residents. The new rural pension program allows villagers aged 16 or older to contribute for at least 15 years to qualify for a pension. The urban program for those aged 45 or older is to be implemented in 60 per cent of Chinese cities and townships by the end of this year, before being introduced nationwide in 2012; the program is funded by government subsidies and individual contributions.

Source: "China: New Law in China Will Create a More Unified Nationwide Social Security System," Global News Briefs, June 2011; "Premier Wen Vows Tight Supervision over Pension Funds," Xinhua News Agency, June 21, 2011; "D-Day for Social Security," China Daily, July 1, 2011; "China Expands Statutory Pensions and Aims for System Convergence," IP Asia, July 7, 2011; "China's Rural Pension Program Covers 199 Million People," Xinhua News Agency, July 25, 2011.

Implementation date: 07.2011