The video explores the growing pension crisis in China, focusing on young workers like Humphrey and Kao Peng Cheng who have suspended their contributions to the country's pension system. The video highlights the concern that China's pension fund will run out of money within a decade due to demographic changes and the rising number of retirees, leading to a strain on the economy. It examines why young Chinese prefer not to pay into the system, citing economic uncertainties and inadequate earnings as primary factors.

It is unique because of the scale of China's pension issue, with over 400 million people expected to be over 60 by 2035, posing a significant challenge to the world's largest social security network. In comparison to global events like the pension crisis in Paris, the video emphasizes the vastness of China's problem and the demographic shift caused by the former one-child policy, which has led to a 4:2:1 family structure now reversing in responsibility.

Main takeaways from the video:

Please remember to turn on the CC button to view the subtitles.

Key Vocabularies and Common Phrases:

1. pension [ˈpenʃən] - (n.) - A regular payment made by the government or a private company to a person after retirement from active work. - Synonyms: (retirement fund, superannuation, benefits)

Gao and Humphrey are among the estimated tens of millions of mostly young workers who have suspended their contributions to China's pension system.

2. demographics [ˌdeməˈɡræfɪks] - (n.) - Statistical data relating to the population and particular groups within it. - Synonyms: (population statistics, population dynamics, census data)

The key reason behind this demographics. It all comes down to demographics.

3. imbalance [ɪmˈbæləns] - (n.) - A situation in which different elements are not equal or in the correct proportions. - Synonyms: (disparity, inequality, disproportion)

There's also questions as to whether raising the retirement age will help alleviate the growing pressures on the pension system and to stem wider fallout from the generational imbalance

4. compliance [kəmˈplaɪəns] - (n.) - The act of conforming to or following rules or standards. - Synonyms: (obedience, adherence, conformity)

According to a recent survey of 6,000 Chinese firms, only 28% were fully compliant on Social Security support.

5. generational [ˌdʒenəˈreɪʃənl] - (adj.) - Relating to or characteristic of all the people born and living at about the same time, regarded collectively. - Synonyms: (age-related, cohort, temporal)

There's also questions as to whether raising the retirement age will help alleviate the growing pressures on the pension system and to stem wider fallout from the generational imbalance.

6. discontent [ˌdɪskənˈtent] - (n.) - Dissatisfaction with one's circumstances. - Synonyms: (dissatisfaction, unhappiness, displeasure)

Yet the decision triggered discontent across the country.

7. incentives [ɪnˈsentɪvz] - (n.) - Things that motivate or encourage someone to do something. - Synonyms: (motivation, inducement, encouragement)

Birth rates have kept going down despite new incentives for families to have two or more children.

8. navigate [ˈnævɪˌɡeɪt] - (v.) - To plan and direct the course of a journey or to find a path through a complex system or set of problems. - Synonyms: (guide, steer, maneuver)

The easiest way to navigate China's pension maze is to think of it as three pillars.

9. viability [ˌvaɪəˈbɪləti] - (n.) - Ability to work successfully or to be achieved. - Synonyms: (feasibility, practicality, achievability)

This growing strain on the pension system is what led the Chinese government to announce its historical measure.

10. strain [streɪn] - (n.) - A state of tension or pressure. - Synonyms: (stress, pressure, burden)

This growing strain on the pension system is what led the Chinese government to announce its historical measure.

Why Are China’s Youth Boycotting Pensions?

This is Humphrey, a 24 year old tango instructor. And this is Kao Peng Cheng, a 22 year old social media content creator. They may not know it, but they're both at the center of the next crisis looming over China. Gao and Humphrey are among the estimated tens of millions of mostly young workers who have suspended their contributions to China's pension system.

In about 10 years, Chinese pension fund is not going to have enough money to support China's retirees. It's part of the reason why on January 1st, China officially raised its retirement age for the first time in more than 40 years. So why are so many young Chinese refusing to pay into the pension system? And what does that mean for the future of the world's second largest economy?

A looming retirement crisis isn't something unique to China. Violent protests broke out in Paris yesterday over changes to the government's pension plan. We owe 38 trillion, not counting Medicare, Medicaid, Social Security, which is going bankrupt. But what is unique to China is the scale. More than 400 million people are expected to be 60 and above by the year 2035. That's out of 1.4 billion people in China. And if you put that into context, that's more than the population of the US and Canada combined. When they retire, most of them will be eligible to receive some, some sort of benefit.

Like anything in China, China's pension system is staggering in size and scale. It actually has the world's largest Social Security network. And the basic State pension covers 1.1 billion people. That's 80% of the population. And that system covers things from work injury, retirement pensions and maternal leave and things like that. The easiest way to navigate China's pension maze is to think of it as three pillars.

First and biggest of those is the basic pension system, which is managed by the state and covers over 1 billion people. People with a formal job are required by law to contribute into this fund while payments are voluntary for those who aren't in formal employment. Within this pillar, the most important segment covers urban business workers.

The second pillar is the voluntary corporate pension, where companies can decide if they want to set up retirement plans for for their employees. You can think of it as your 401k in the US it covers 31 million people and it has 3.2 trillion yuan in assets.

And the third and newest pillar is the voluntary individual pension which was introduced in 2022. It's kind of like an equivalent to the IRA in the US. People can put money into this tax sheltered account and you can pick what investments you want to put into 60 million people have signed up to this plan, but only less than a third have made any deposits, and the funds only attracted 28 billion yuan.

Now, each one of these pillars is underfunded to some degree. According to a report published back in 2019, the segment in Pillar 1 that covers urban workers is expected to run out of money by 2035. This was a key chart in that report. The line shows the balance in China's Urban Business Workers pension Fund, which is expected to peak in 2027. Look at what happens after that. The key reason behind this demographics. It all comes down to demographics.

Remember this. For the next 30 years at least, all couples may only have one single child each. China's one child policy was introduced in 1979 with the goal of curbing rapid population growth. And by its own measures, it was widely successful. This chart shows how the birth rate decreased by more than half since the policy was introduced.

This created a unique family structure that's now almost universal in China. If you think about the 4:2:1 structure, four grandparents, two parents doting on one child. That dynamic was the model in China for many years until the government ended the one child policy. Now the cars are being flipped where the one child has to take on the responsibility of taking care of six aging people.

The government has been trying to reverse the impacts of the one child policy, but these efforts haven't really worked. Birth rates have kept going down despite new incentives for families to have two or more children. China recently experienced two years consecutive of negative population growth. The younger generation of people who can contribute to the pension system. That size has declined as Chinese population overall declines. And at the same time, more than 20 million people are expected to retire in China each year for the next decade.

All of this means that while every year more and more people in China will be collecting their pension, fewer of them will be of working age and thus able to contribute into the retirement fund. At the same time, the young people who are of working age, like Kao and Humphrey, who we met earlier, often cannot afford to contribute, or they simply prefer not to. Underlying Gao's decision is also a lack of confidence about the future of China's economy. It's a view shared by Humphrey, who works as a researcher at a university and a part time dance teacher in Beijing.

Out of all the flexible workers, the majority of them are under 40 and 70% of them only make less than $1,100 a month. That means a lot of these people can't make ends meet. They don't have enough money to put into the state pension system after they meet their monthly demands. A full time job does not guarantee greater pension contributions either.

The pension system is also getting squeezed by companies not complying where the company should be contributing to workers pension. According to a recent survey of 6,000 Chinese firms, only 28% were fully compliant on Social Security support. This growing strain on the pension system is what led the Chinese government to announce its historical measure.

Lawmakers have decided to raise the retirement age by up to five years. As China transformed from one of the poorest economies in the world to the second largest economy in the world, its labor retirement age has not changed and that is a problem. Major economies like the us, UK and Japan all have higher retirement ages than China, even with a new policy in place.

Yet the decision triggered discontent across the country. There's also questions as to whether raising the retirement age will help alleviate the growing pressures on the pension system and to stem wider fallout from the generational imbalance. The issue is only postponed with this move. Ultimately, the government will have to reform its pension system.

ECONOMICS, GLOBAL, POLITICS, CHINA PENSION CRISIS, DEMOGRAPHIC CHALLENGES, SOCIAL SECURITY SYSTEM, BLOOMBERG ORIGINALS