MNI: China Needs SOE Share Transfer To Boost Pensions-Advisors

Policymakers need to transfer additional state-owned enterprise shares into social security funds to bolster pensions for low-income groups, advisors told MNI, as Beijing explores options to boost incomes and consumption under the 15th Five-Year Plan.

Authorities would need to transfer CNY5-10 trillion worth of shares in listed SOEs to supplement social security funds, said Xu Hongcai, deputy director of the China Association of Policy Science’s Economic Policy Commission, which would help raise monthly pensions to CNY1,000 over coming years. The measures would support low-income residents with a high propensity to spend, such as rural seniors who currently receive pensions of around CNY200 per month, below the average rural minimum living allowance of CNY594.

Beijing’s recent emphasis on an upcoming income-boost plan marked a departure from usual language of “promoting residents’ income growth”, and signalled a shift toward structural reforms aimed at lifting incomes across a broader segment of society with more targeted measures, potentially including quantitative targets linked to GDP growth, said Gong Liutang, director of the Institute for Advanced Study at Wuhan University.

Allowing social security funds to directly hold more SOE shares, enabling retirees to benefit from dividends generated by state-owned assets, could be an important part of the plan, Gong said, while warning that transfers should proceed at a moderate pace to ensure sustainability given state-owned capital’s profit growth.

Senior advisor Liu Shijin, former vice president of the State Council’s Development Research Center, has publicly proposed transferring CNY20 trillion worth of SOE shares over the next five years, a move he said could generate CNY1.46 trillion in revenue, based on the 7.3% average rate of return achieved since the establishment of social security funds.

Combined with around CNY1.17 trillion in fiscal subsidies – potentially financed through ultra-long-term special treasury bond issuance – the funds could lift average monthly pensions for both urban and rural residents from CNY246 to around CNY1,000 during the 15th Five-Year Plan period, Liu said.

The reform could generate CNY8.3 trillion in additional demand over five years, raising annual GDP growth by 0.3-0.5 percentage points and supporting around 170 million people, 95% of whom are elderly residents in rural areas, Liu estimated.

The proposal has precedent. Social security funds received an initial transfer of 10% equity stakes in a limited number of centrally administered firms under a 2017 pilot programme, totaling CNY2.26 trillion in equity and cash income by September 2025.

INCOMES

Gong said the central government has ample scope to increase borrowing to expand transfer payments to the bottom 20% of income earners, whose average disposable income stood at CNY10,150 in 2025. He added that the government’s CNY300 billion in consumer trade-in subsidies would be more effective if distributed directly to low-income households.

In addition to wage increases and welfare expansion, boosting property income – currently accounting for just 3.59% of GDP, compared with around 17% in the U.S. – should be paired with stronger efforts to stabilise the housing market and encourage higher dividend payouts by listed companies, Gong said. (See MNI: China To Assess Housing Stimulus On Q1 Performance)

For rural residents, he added that greater flexibility in the use of homestead land, including allowing it to be used as collateral for loans, would be critical to rural revitalisation and more sustainable income growth.

Xu, who is also chairman of Beijing Honglve Consulting Limited Company, stressed the need to improve the business environment for the private sector – particularly small and medium-sized service-sector firms – to support job creation, and called for resolving local governments’ overdue payments to companies.

While China’s 45% top marginal personal income tax rate and 25% corporate income tax rate have long drawn criticism, Xu said strained local government finances leave little room for broad-based tax cuts. Gong argued that the current seven-tier progressive income tax system is overly complex and constrains the expansion of the middle-income group, adding that larger tax deductions for education and childcare could be introduced in the near term.