The investment operations of social insurance funds play an important role in withstanding inflation, complementing fund sources and alleviating the burdens of citizens and the government. Given the country's unsound capital market and fund supervision system, the government must consider which part of the social insurance funds can be used for market investment and how to oversee these investments. But the draft law does not provide detailed stipulations in this regard. It only says that as a prerequisite to ensure safety, social insurance funds can be used for the purpose of inflation-proof investments and investments that will appreciate in value, according to the provisions of the State Council.

Government responsibilities

The draft law also stipulates that a new type of rural medicare system, in which farmers and governments both contribute funds, will be included in the national medicare insurance plan. Meanwhile, the government will cover medicare insurance expenses for citizens who live on low-income subsidies, have serious disabilities or are over 60 years old.

According to the draft law and the country's labor law, both individual workers and their employers must contribute to endowment funds for medicare and unemployment insurance, while employers must pay for the insurance coverage for workplace injuries and childbirth.

Some experts believe that the draft law should also specify the government's responsibilities more clearly. In a commentary published by the Oriental Morning Post, Qiao Xinsheng, a professor of economic law at Zhongnan University of Economics and Law in Wuhan, Hubei Province, says the draft law only states the overall responsibilities of the government, but provides no details. For example, it does not stipulate the specific calculation standards for government subsidies, and there is no clause ascertaining the government's responsibilities.

Qiao believes that although the draft law calls for the strict supervision of social insurance funds and the establishment of supervisory committees, it does not include a budget system for the social insurance funds, making it difficult for the committees to really control them. Without a budget formulation and examination system, the management of the social insurance funds will be difficult to realize, he wrote. And once the government finds that there are not enough social insurance funds, it should add more so as to protect the interests of social insurance participants, he added.

Wang Xianzhang, Chairman of the Insurance Association of China, believes that the promulgation of the social insurance law also needs significant financial support from the government. In an interview with the China Business Times, he said as the number of senior citizens has grown, the shortfall in pension funding has reached 740 billion yuan ($108.35 billion) and could hit 6.2 trillion yuan ($907.76 billion) in 30 years. Once the social insurance law is promulgated, all the funds must be in place, he said.

"It is a severe challenge to the country's fiscal mechanism," Wang said.

Reform of China's Social Security System

Phase 1: 1986-93. The government implemented the contract labor system

and unemployment insurance system for employees at state-owned enterprises. It also set social insurance reform as one of the supporting measures for the restructuring of state-owned enterprises.

Phase 2: 1993-98. The government made the social insurance system one of

the five pillars of the socialist market economic system, with the new social insurance system geared to economic efficiency, and the sources and rates

of social insurance funds set variedly among different industries.

Phase 3: 1998-present. The government straightened out the social insurance

regulation system to some extent to ensure basic social security funds for

retired and laid-off workers.

 (Source: www.cnss.cn)