Pension financing in China: Is there a looming crisis?

Contemporary pension systems face a major fiscal challenge. In China, whose population has been aging rapidly, such a challenge is of extreme importance. This article finds that, in China, the cumulative funding gap in pensions should be 2022.34billion Yuan until 2020, and 71731.94billion Yuan until 2050; however, based on the fiscal capacity of the Chinese state, the fiscal burden created by pensions is not expected to create a financial crisis between 2013 and 2020. Furthermore, a fiscal crisis can be avoided between 2021 and 2050 if fiscal revenue increases by at least 6.18% a year on average during that period. This absence of predictable financial crisis does not mean that there are no significant demographic and fiscal issues ahead. This means that China should promote pension reform to prepare for an increasingly heavy financial burden in the future. The article concludes with policy recommendations about how to improve the long-term fiscal situation of China's growing pension system.