Challenges of Risk-Based Supervisory System
February 12, 2025
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There has no doubt about the fact that the Chinese economy is one of the largest economies in the world today.
Theoretically, China is the second-largest economy in the world. It is widely believed that the Chinese economy will surpass the American economy to become the largest in the world.
However, many economists believe that the Chinese economy is already the largest one in the world if we consider purchasing power parity.
The fact that China has grown at such a remarkable pace has made it a case study for the world. As a result, a lot of scholars are carefully studying the pension system in China as well.
The Chinese system is quite different as compared to the western world. In this article, we will explain how the Chinese pension system works.
The Chinese have created this system because they believe that the financial habits and investment preferences of investors can be very different from each other.
The high number of schemes has caused some confusion amongst the citizens. Many citizens have complained that they are not able to fully comprehend how the system works and how they can gain benefits out of the same.
Many employers have complained that these rates are prohibitively high when compared to other countries of the world. However, China being a communist country tries to focus more on the social welfare of its workers.
In most parts of the world, pension funds are managed at the central level. Hence, the rules governing pensions can vary even within different parts of China.
In most parts of the world, governments encourage their people to invest in pensions by providing them with tax relief. However, this is not the case in China.
In China, there is small tax relief for the employers who make a contribution on behalf of their employees. However, there is no direct tax benefit for employees who make contributions to their pension funds.
It seems like the government is not interested in ensuring higher pension contributions which is strange given the fact that China still has a large population that is close to the poverty line.
The fact of the matter is that the Chinese system is quite complex. There are several schemes and variations which apply differently to different sets of workers. This is in sharp contrast to the largely homogenized pension systems of western democracies.
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