China Social Security System

The Chinese Central Government issued the general guidelines upon which the social security system in China operates since the late 1990s; however when it comes to the specifics of the system and how social security within the PRC will be administered, the central government has appointed local level government institutions to implement the management. This approach is seen as the only workable solution for a country as large as the People’s Republic of China, as any central management with specific contribution levels and benefit payments would be unworkable when applied to populations in cities as diverse as Urumqi, Chengdu, Harbin, Beijing and Guangzhou, to name but a few.

In order to preserve the essence of the general guidelines, the social insurance, when applied to urban areas all over China, is subdivided into the following five distinct categories:

(a.) Medical insurance
(b.) Maternity insurance
(c.) Unemployment insurance
(d.) Occupational injury insurance
(e.) Pension

A summarised description of how these different insurance categories function follows;

(a.) Medical insurance

Both employers and employees are required to make contributions to the medical insurance fund, which allows Chinese citizens to cover, in whole or in part, the costs of the medical expenses incurred by an illness or injury. Most cities in China require the patient to pay from their own pocket a certain percentage of the total hospital bill, which contrasts with hospitals in other countries where the medical treatment is provided free of charge. The most straightforward case for payment of this fee happens when the hospital is based in the same city where the medical insurance premiums are being paid, and it becomes complicated in cases where an employee falls ill or is injured whilst on holidays or a business trip. For these latter cases, the reimbursement of the fee paid as a percentage of the total hospital bill will be subjected to some rules, including whether or not it falls in the category of urgent medical treatment, plus certain other special requirements that the patient must satisfy.

Chinese citizens covered by medical insurance are issued with a card which represents the account into which a small monthly contribution is deposited. These funds can be used at pharmacies to buy medicine or other goods, or even to settle small medical expenses at hospitals.

(b.) Maternity insurance

Unlike medical insurance, the contributions towards China maternity insurance plans are made only by employers. When an employee becomes pregnant, a lump sum amount is awarded to cover, in whole or in part, costs associated with the birth of the child. Furthermore, during the period of maternity leave, the salary of the employee will be paid by the maternity fund.

The Chinese maternity insurance scheme caps the amount of contribution towards the employee's salary equal to three times the average salary in the region in which she is located. Some companies pay the difference between the amount provided by the maternity insurance fund and the actual salary of the employee in cases in which the employee earns more than three times the average regional salary, to ensure that the employee receives her full salary during the period of maternity leave.

(c.) Unemployment insurance

Companies operating in all major cities in China are expected to contribute towards unemployment insurance and, in the majority of these cities, require their employees to also make a contribution. Should the employee become unemployed, a claim will allow them to receive unemployment benefits, provided contributions to the unemployment insurance fund have been made for a minimum period of one year.

The exact amount paid from the unemployment insurance fund will be a fixed amount that varies from city to city, and it is unrelated to the employee's salary or the total amount the individual had contributed to the fund in excess of the one-year minimum requirement. Furthermore, unemployment benefits can be enjoyed for a maximum of 24 months.

(d.) Occupational injury insurance

Contributions to the occupational injury insurance fund are only made by the employer, and the amount depends upon the nature of the work performed by the employees. The amount of contribution is directly proportional to the degree of danger in the workplace, which means that the more dangerous the nature of the work the employee engages on, the higher the percentage of contribution to the occupational injury insurance fund becomes. The percentage range for such contribution varies between 0.4 and 2 percent of the gross salary paid to the employee. Ultimately, the local social insurance bureau will determine the exact amount of the percentage premium, based on the category of industry the company is deemed to belong to.

Should an employee suffer an injury as a result of an accident at work, the employer is required to collect all material evidence related to the injury, all costs associated with its treatment, then apply for reimbursement from the occupational insurance fund. During the period of recovery, the employee is entitled to receive the full amount of salary from the employer.

(e.) Pension

Contributions towards the retirement fund are made on a monthly basis by both the employee and the employer. As it is the case in many other countries, China has put in place a system to ensure that its citizens receive a pension upon retirement. The portion of the contributions made by the employee are pooled into a personal contributions fund, which are directly accrued to the individual, so that when the individual retires, automatically becomes entitled to directly draw from this fund.

Unlike how the employee contributions are handled, the contributions from the employer are deposited into a social pool. Funds from this social pool are distributed to all citizens that have contributed to the retirement fund during their working life. Citizens that have exhausted the balance of their personal contribution account are still entitled to receive a monthly income from the funds in this social pool, although the amount is likely to be just a few hundred Renminbi. In China, pension contributions are generally the largest component of social insurance made by both the employer and the employee.

There is in place now in China a housing fund that only the employer contributes to. However, this fund is handled separately from the social insurance funds described above.

Labelled as "mandatory benefits", the social insurance and housing funds are usually managed by, and considered the responsibility of, the employer; although payments to the social insurance funds can be lumped together and paid each month to the social insurance bureau. The monthly amount corresponding to the housing contribution is paid directly to the housing fund bureau.

For more information about China, the international health insurance plans that we can offer there, or to receive a free quote, please contact one of our expert advisers today.

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