Hong Kong: China’s labour revolution continues: New social insurance law

Last Updated: 12 July 2011
Article by Nicolas Groffman, Sharon Wong and Liya Zhang

China's new Social Insurance Law has come into force, attempting to address one of China's priorities in the 12th five-year plan of remedying social inequality by improving China's social security framework, but the full extent of the changes are likely to be delayed (particularly the application of the law to expatriate staff).

The legislation surrounding China's social security framework

The Standing Committee of the National People's Congress ("NPC") promulgated the Social Insurance Law ("SIL") on 28 October 2010.  It came into legal effect on 1 July 2011, although, as we shall see, in practical terms it cannot yet be put into practice.

If successful, this new law may go some way to reducing the pressures of social inequality.  As mentioned, easing of social tension was highlighted as one of the key aims for the 12th five-year plan (covering 2011 to 2015).  The 11th five-year plan contained identical aspirations but did not achieve them. 

For the international community, a key issue is how and when the SIL will apply to non-Chinese employees.  The compulsory application of the social insurance law to foreigners is effectively not yet in force, because various implementing measures are not yet finalised. 

Countries like Australia, the US and the UK require foreign resident workers to contribute to their social insurance schemes, and so arguably China is following international norms by adding this new requirement.  The Chinese health system, however, cannot yet provide social insurance at levels equivalent to those in developed countries.  International companies in China generally provide private medical, pension and other social insurance, and so there is little benefit for international employers and employees in paying for local schemes.   Employers would, under the proposed schemes, be faced with an increase in payment obligations in addition to demand from foreign workers for private insurance policies.

Another issue that affects all employees (not just foreigners) is the fact that the Ministry of Human Resources and Social Security ("MHRSS") and its regional offices are understaffed.  The MHRSS has difficulty meeting its obligations even under the present system.  Officials from branches of the MHRSS in three different cities have told us informally that they would not be able to implement the laws and draft regulations as presently published.  Relevant authorities currently differ in their opinion on how and when to impose social insurance obligations on foreigners and until these differences in opinion have been resolved it may be some time before the changes take effect.

Background to the SIL

Social insurance is not a new concept in China, having its origins in the "iron rice bowl" of the socialist era from 1949 to 1978.  However, this welfare network depended on policy, not law, and was grounded on a socialist economy rather than a socialist market economy.  As the old non-corporate "danwei" (work units) were gradually disbanded, and as more Chinese employees moved into the private sector, it became vital for there to be a mandatory nationwide social insurance system sponsored by government.

The PRC Labour Law, enacted in 1995, provided for social security and devoted its Chapter 9 to legislating for this.  Various regulations followed, including the Provisional Regulations on Collection and Payment of Social Insurance Premiums promulgated by the State Council in 1999 and the Work-related Injury Insurance Regulations adopted by the State Council in 2003. 

In addition to the nationwide regulations, policies regulating the social security framework were scattered throughout a range of directives, rules and regulations both at a central and local level. The SIL consolidates various existing rules and regulations and aims to establish a social security framework that will cover both urban and rural residents, tighten supervision over contribution of social insurance premiums and empower all Chinese nationals to enjoy social insurance benefits. 

The new SIL is the first comprehensive social insurance law in China applying to both Chinese nationals and foreigners legally employed in China. The MHRSS has also issued implementation rules (one of which is still in draft) for the SIL, namely: 

  1. Several Rules on the Implementation of the Social Insurance Law ("Implementation Rules"), which prescribes how the SIL will be implemented and how disputes will be settled; and
  2. the Draft Interim Measures for the Participation in Social Insurance of Foreigners Employed in China ("Draft Measures"), which extends the benefits given to Chinese nationals under the SIL to foreigners.

Forms of mandatory insurance and fund

As was the case in the past, five types of insurance schemes comprise China's comprehensive social insurance system, being (i) pension insurance, (ii) medical insurance, (iii) unemployment insurance, (iv) occupational injury insurance and (v) maternity insurance.  These five insurances, together with the mandatory housing fund, make up the regular package of benefits afforded employees.

Pension and medical insurance can be enjoyed by all individuals in China, unemployment, occupational and maternity insurance are only applicable to employed Chinese nationals or foreigners. 

The housing fund, although handled in a similar way to the other five types of social insurances (and not strictly part of the social insurance portfolio), is always treated separately because it is handled by a different authority (the Ministry of Housing and Urban-Rural Development) and governed by different legislation (Regulation on the Administration of Housing Accumulation Funds). 

While there has been no change in the types of social insurance available to employees, the SIL seeks to provide more flexibility in how certain insurance can be accessed.  These are separately discussed below.

The rights of Chinese employees under the SIL

1. Pension insurance

Employees may now enjoy their pension insurance benefits even if they have not contributed to their pension account for the prescribed period of 15 years.  Previously, employees who reached the mandatory retirement age (generally, 60 for men and 55 for women ("Stipulated Retirement Age")) but who failed to meet the 15 year contribution prerequisite were required to exchange their pension benefits for a lump sum payment rather than enjoy regular basic pension until death.  Employees also had the option of delaying their retirement for an additional 5 years if doing so would complete the 15 year requirement and make them eligible for pension.

Under the SIL, an employee may now enjoy his/her pension benefits upon reaching the Stipulated Retirement Age even if the required contribution period is not met, provided that the employee continues to pay premiums to fulfil the 15 year payment period.  This can be achieved by any one of the following four options:

  • delaying retirement to reach the 15 year contribution period;
  • paying regular premiums over a 5 year period and then paying any outstanding payments in one lump sum.  This option is only available to employees who would have met conditions prescribed by previous effective legislation.  For example, pre-SIL Shanghai regulations stipulated a 10 year contribution period only.  As such, if after delaying retirement by 5 years the employee exceeds the old 10 year contribution requirement but fails to meet the new 15 year contribution period requirement, such employee could pay-in a lump sum amount;
  • transferring pension insurance to another program available to urban or rural residents; or
  • as was originally available, the employee may opt to retrieve his/her pension account balance, together with interest, in one lump sum. 

Obviously these options still do not eliminate the possibility for financial hardship, since they require capital investment by someone who may not be earning.  They are nevertheless an improvement on the previous regime.

2. Transferability of social insurance across different districts

Employees now have greater flexibility in terms of job mobility.  Traditionally, insurance benefits accumulated during an employee's employment tenure in one district were not readily transferable to another as social insurance programs were separately managed according to location.  The new social insurance regime is intended to allow employees to work in different locales without concern over whether they are able to retain the full value of payments made to his/her insurance funds.

Despite the fanfare in the Chinese press that greeted this provision, it was already provided for in the PRC Labour Contract Law of 2007.  Article 49 of that law provided that the state must establish a comprehensive system that ensures employees' social security relationships can be transferred from one region to another and can be continued in such other regions.  The SIL repeats this, but in the end it will be the local labour bureaus in each location that will be responsible for effecting the same.

3. Inclusion of rural residents

Under the SIL, rural residents are now eligible to participate in social insurance programs enjoyed by urban employees.  In the past, rural residents working outside of urban areas did not have the right to social insurance.  Further, while rural residents working in cities could participate in social insurance programs, the programs for rural residents were inferior to those enjoyed by their urban counterparts and were not transferable. 

The new social insurance program effectively allows rural residents the option of upgrading to an urban social insurance scheme.  Upon cessation of employment, rural resident employees can choose to transfer back to their rural social insurance program.  As a result of this coverage, the discrepancy in benefits for rural residents as against urban residents has been considerably narrowed.

The Draft Measures - Inclusion of foreigners under the SIL

The SIL mentioned, in a casually-worded provision at the end of the law, that foreigners would be covered by the new rules.  The Draft Measures contain some explanation of how this will work, but since they are still in draft form with no guarantee of issuance in the same form, there is still uncertainty over how, if at all, the SIL will apply to foreigners.  In this section, we examine how the Draft Measures, if enacted, would deal with social insurance for foreigners.

Foreigners legally employed in China (including employees from Hong Kong, Macau and Taiwan) would be required to participate in China's national social insurance program.  "Legal employment" includes foreigners seconded or sent by their overseas office to work in China on a limited fixed-term basis.  To qualify for social insurance, a foreigner must be engaged in an employer-employee relationship, and therefore self-employed foreigners will not be required to participate in the national social insurance regime.

Prior to the Draft Measures, nine cities in China (Beijing, Shanghai, Suzhou, Kunshan, Hangzhou, Guangzhou, Shenzhen, Tianjin, and Nanjing) already provided foreigners the option of participating in local social insurance programs on a voluntary basis.  In practice, even in those cities, it was difficult for the tiny minority of foreigners who wished to participate in Chinese social insurance schemes to be registered.  This was partly because those foreigners tended to come from developing countries whose nationality documents were unfamiliar to the relevant government authorities, and partly because the relevant branches of the MHRSS did not have the time, manpower, forms and bureaucracy in place to cater for foreigners.

At present, details of how foreigners may participate in the social insurance programs are vague and lacking in detail. 

1.  Settlement of the social insurance premiums

Given that many foreigners reside and work in China on a temporary basis, provisions have been made in the Draft Measures in the event of their departure.  Foreigners have the option of applying in writing to cash out their contributed funds or simply reactivating their social insurance packages upon resuming legal employment in China, which must be effected prior to reaching the Stipulated Retirement Age. 

The Draft Measures do not stipulate for how long a period a foreigner's social insurance accounts will be kept active should he/she depart China.  As such, there is a possibility that failure to apply for a cash-out could result in a loss of these funds.  Further, it is unclear how the authorities will maintain a foreigner's social insurance accounts so as to keep them active or whether there is fee associated with this process.

2. Status of benefits while abroad

Eligible foreigners will be able to enjoy the benefits of their social insurance programs abroad.  While no guidance is provided on what constitutes qualifications required for eligibility, it is likely similar to those imposed on Chinese nationals i.e. must have reached the Stipulated Retirement Age and contributed to the pension fund for 15 years.

From a procedural perspective, in order to receive local social insurance benefits, overseas foreigners must submit annual documentation (obtained from their Chinese Embassy) to the relevant social insurance agency  to ensure that their accounts remain active. 

There is no guidance on which social insurance agency will be considered appropriate if, for example, a foreigner had been a long-term employee in several locales.  In this regard, the authorities may adopt an approach similar to that for Chinese individuals.  That is, it will depend on whether the last location at which the individual worked was for more than 10 years.  If not, the previous locale having a tenure of 10 years will take precedence.  If a Chinese individual has worked in several locations, none of which met the 10 year requirement, then the social insurance agency at the PRC national's place of residence will be responsible.  It is uncertain whether the authorities will extrapolate similar principles with lower time limits for foreigners to determine the social insurance agency.

3. Legislative gaps

While the Draft Measures stipulate the right of foreigners to participate in social insurance programs under the SIL, they do not contemplate how foreigners might qualify for the receipt of certain social benefits or how it may be implemented in practice.  For example, although the SIL provides that foreigners may participate in unemployment insurance, a foreigner must first have a legitimate work permit to enjoy these benefits in China which can only be obtained through employment.  This requirement may effectively defeat a foreigner's ability to access unemployment insurance onshore.  In addition, foreigners may have difficulty accessing their medical insurance, as foreign hospitals and clinics are often excluded from medical insurance reimbursement, and language barriers often keep foreigners from visiting local medical institutions.

These gaps in the law may act to preclude foreigners from enjoying the benefits afforded them under the SIL.  Given these uncertainties, further clarification is welcomed prior to the Draft Measures coming into force.

4. Increased costs to hire foreigners

Under the Draft Measures, depending on the province or city of employment, employers will now be expected to contribute an additional percentage of a foreigner's salary to support an employee's mandatory participation in the social insurance program.  This would impact employers' costs of hiring foreigners and may, in turn, also affect foreigners' ability to successfully compete for employment in China.  Further, as social insurance premiums are only payable after six months of a foreigner's employment in China, employers may be inclined to hire foreigners on limited engagements to avoid additional costs.

5. Exemptions for foreigners

Foreigners must participate in the SIL unless his/her home country has a bilateral or multilateral social insurance agreement with China. At present, only German and South Korean citizens employed in China may opt out of participating in China's social insurance programs provided that they are able to produce a certificate of proof showing collection of premiums in their home country.

Employers' responsibilities under the SIL

According to the SIL, both the employer and the employee must contribute jointly to pay social insurance premiums.  The employer is responsible for withholding premium contributions from the employee's monthly salary, and transferring such premiums to relevant authorities fully and in a timely manner. If an employer fails to act accordingly, the social insurance agency will issue an initial warning, which is then followed by a compulsory deduction or the provision of an employer guarantee to pay the outstanding funds.

Premium contribution rates for the insurance schemes payable by employers and employees differ from province to province. As a general reference, the tables below set out the revised monthly contribution rates of social insurance programs in Beijing and Shanghai as at 29 June 2011.


Contribution rates in Beijing per employee per month

Insurance items for contribution



(% of basic salary)

Maximum payable (RMB)

(% of basic salary)

Maximum payable (RMB)











Occupational Injury​





















Contribution rates in Shanghai per employee per month

Insurance items for contribution



(% of basic salary)

Maximum payable (RMB)

(% of basic salary)

Maximum payable (RMB)











Occupational Injury​




















Social insurance payments are subject to a cap and these are indicated in a separate column above setting out maximum amounts payable.  With these caps, higher compensated employees pay a lower percentage in contributions on the whole.  To illustrate, a shop-floor employee receiving an average wage would pay over 30% of his/her monthly salary into the funds.  By comparison, a manager receiving US$150,000 per annum would only pay around 5% per month into the funds.

Please note that rural resident employees may be subject to lower percentage contributions and each province also has minimum contributions.  These have not been detailed in the tables above.


With the promulgation of China's 12th five-year plan, the SIL, the Implementation Rules and Draft Measures can collectively be seen as integral to the development of China's social security system, helping to cope with social transformation and sustaining the rapid development of the economy.

It is, however, too early to comment on how the law will be applied to foreigners in China.  While there is a clear attempt to include foreigners in China's social insurance regime, authorities may wish to better understand foreigners' social insurance needs prior to applying the regime to them. Employers should in the meantime review their Chinese employees' current payment structure and social insurance registrations to ensure compliance with the new laws to avoid unexpected liabilities. 

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.

Similar Articles
Relevancy Powered by MondaqAI
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
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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.


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.


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