China: China´s Social Justice Revolution Continues

Last Updated: 18 February 2009

Article by Martyn Huckerby, Sharon Wong and Maggie Shen

Originally Published 23rd January 2009

China's social insurance system is currently governed by a multitude of policies and directives at both central and provincial level. On 28 December 2008, the Commission of Legislative Affairs of the Standing Committee of the National People's Congress (NPC) issued a draft of China's first National Social Insurance Law (Draft Law). The NPC is seeking public comment on the Draft Law and the deadline for submissions is 15 February 2009.

According to government officials in the Ministry of Human Resources and Social Security of the PRC, the Draft Law is crucial to domestic employees as it guarantees the basic interests of individuals and ensures social stability. The Draft Law not only consolidates Tentative Regulations on the Collection and Payment of Social Insurance Premiums issued by the State Council in 1999, along with principles set out in other regulations regarding various social insurance schemes, but also introduces new rules on the administration and distribution of social insurance funds, which implies a move towards a nationwide social insurance system.

The Draft Law follows the promulgation of the PRC Labour Contract Law in 2008 and the recent issuance of the Arbitration Rules for Labour Disputes, all of which can be seen as part of China's broad initiative to further emphasise and protect workers' rights and social benefits.

The NPC has already received more than 47,000 submissions from the general public on various practical issues since its issuance of the Draft Law. It is expected that the Draft Law will be finalised and promulgated shortly. Some highlights of the Draft Law are summarised below.

 

Five mandatory social insurance schemes

Employers in China are obliged to pay or contribute to five types of social insurance on behalf of their employees, all of which have been governed by a disjointed number of policies and directives to date. The Draft Law, which consists of 12 sections and 91 articles, consolidates regulations that collectively comprise the framework for the five mandatory social insurance schemes and sets out the basic rules in relation to the payment of social insurance premiums and disbursement of social insurance payments.

Under the Draft Law, employers are required to pay insurance premiums and withhold the amount required to be contributed by employees from their remuneration based on the rate set out by local labour bureaus. The five types of mandatory social insurance are as follows:

  • Old-age insurance: retirees in China are entitled to receive old-age pension fund on a monthly basis until they have reached the minimum retirement age and have paid the insurance premiums for 15 years. The old-age insurance premiums are jointly contributed by the employers and employees
  • Medical insurance: medical insurance is designed for the purpose of compensating employees for medical expenses including such things such as the cost of medicine, outpatient and hospitalisation expenses
  • Unemployment insurance: unemployed workers are entitled to receive unemployment insurance payments at an amount lower than the local minimum wage for 12, 18 or 24 months depending on the length of employment
  • Work-related injury insurance: work-related injury insurance covers, in the event of work-related death or injury, compensation for employees, including medical expenses, disability benefits, nursing expenses and death subsidies. A welcome amendment for employees is that injured workers will be entitled to receive work related injury compensation insurance in advance even if an employer fails to contribute required insurance premiums and refuses to pay medical expenses for an employee, and
  • Child-bearing insurance: premiums paid into child-bearing insurance are available to female employees or unemployed wives of male employees for childbirth allowances during maternity leave and cover part of their medical costs (i.e. medicine, examination, midwifery and hospitalisation expenses) in child-bearing.

 

Towards a nationwide social insurance system

Level of pooling

With regard to old-age insurance, the Chinese government's goal is to nationally pool the collection and distribution of pension funds. A national pooling system will assist in improving labour mobility in China and provide more flexibility for companies to contribute social insurance premiums for employees in different localities. Currently, pooling has largely taken place at the municipal level.

Distribution

The Draft Law allows Chinese citizens who migrate to cities other than where they have been issued a "hukou" (or registered as a permanent resident in a particular area) the ability to pay pension premiums in one place and receive payments in another. Currently, retirees are only entitled to receive pension benefits from where their hukous have been issued. This raises difficulties for employees to both contribute old-age insurance premiums and receive pension funds. This provision is particularly significant as China has a large mobile population.

 

Administration and supervision

Administration

The Draft Law crystallises and reinforces a company's obligation to apply for social insurance registration at local social insurance agencies. A company is required to apply for its social insurance registration certificate within 30 days of its establishment date.

Account administration

Local government social insurance agencies will be responsible for enumerating, collecting, administering, and paying contributions and benefits, as well as maintaining data.

Fund management

Since 1998, China has been exposed to a series of social insurance fund embezzlement scandals in excess of RMB 16 billion (about US$ 2.3 billion - see China Daily article from 23 December 2008). The Draft Law sets down a framework so that funds can be managed with more transparency. Governments at municipal, provincial and the state level are expected to encourage and support the public's participation in supervising the administration and investment operation of insurance funds.

Liability

The Draft Law imposes stricter liability on companies should they fail to carry out social insurance registration, refuse to pay or delay in paying required social insurance premiums and sanctions include the imposition of fines, administrative punishment and criminal liability. For example, if an employer fails to effect mandatory social insurance registration, the relevant labour authority is entitled to impose a fine that is up to three times what a company would have been required to pay. Currently, penalties are only imposed on responsible personnel within a company.

 

Conclusion

A sound social insurance law is important to ensure social stability in China and existing legislation is disjointed and spread across various implementing rules at provincial level. The Draft Law has been formulated to strengthen and standardise the basic principles for collection, disbursement and management of social insurance premiums in the PRC.

Under the new system, mobile workers will benefit by being entitled to contribute and receive social pension funds in different locations and freed from current "hukou" restrictions. In this regard, the Draft Law can be viewed as part of a trend towards greater social benefits for individuals and workers and a fortified nationwide safety net, which may prove crucial at a time when China's level of growth is under threat.

Though there may be limited direct impact on companies who are obliged to pay employees' social insurance premiums regardless, the Draft Law will consolidate a web of legislation previously set down and accordingly reduce the level of rules and regulations that companies registered in China need to navigate through.

 

The views set out in this publication are based on our experience as international counsel representing clients in their business activities in China. As is the case for all international law firms licensed in China, we are authorised to provide information concerning the effect of the Chinese legal environment. However we are not admitted to practice Chinese law and so are unable to issue opinions on matters of Chinese law. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions