Drop in China’s social insurance rates could cut labor costs

By Jake Liddle

Rising labor costs in China are setting off alarms with foreign investors because of increasing minimum wages and living standards, as well as the extensively developed social security system. However, as the central government exerts pressure to maintain economic growth targets, the cost of employees’ welfare benefits has been substantially reduced.

According to the Socioeconomic Development Outline of the 13th Five-Year Plan, maternity insurance and basic medical insurance are likely to be combined soon. This implies that China’s insurance programs might  be reduced from the longstanding ‘five insurances and one fund plan that included pension, medical insurance, unemployment insurance, maternity insurance, and occupational injury insurance and the housing fund to four insurances and one fund. Meanwhile, various provincial governments have released new policies to lower aspects of social security insurance premiums.

Shanghai

Effective since January 1, the Shanghai government reduced the premiums an employer pays for basic pension insurance and basic medical insurance by 1 percent and unemployment insurance by 0.5 percent.

Guangzhou

The Guangzhou government announced that as of May 1, the cost of unemployment insurance will be reduced by 1 percent, and requires that in the second half of this year unit rates will gradually reduce to about 5.5 percent in order to promote the integration of urban and rural basic medical insurance.

Tianjin

In early February, the Tianjin government launched its first batch of 20 measures and policies to reduce insurance premium rates. The premium an employer pays for unemployment insurance will drop by 1 percent, maternity insurance will drop to 0.5 percent, and workplace injury insurance’s lowest standards will drop to 0.2 percent, but highest standards will remain at 1.9 percent.

Zhejiang Province

Zhejiang decided that the basic medical insurance premium paid by  an employer will reduce by a month’s rate each year, while maternity insurance and workplace injury premiums will drop by 0.2 percent.

Xiamen and Fujian Province

Fujian and Xiamen have released notification that employers premiums  for basic medical insurance will drop 1 percent.

Yunnan and Gansu

The provinces of Yunnan and Gansu have also reduced the premiums for unemployment, workplace injury, and maternity insurance policies.

Influence and Future Trends

These adjustments to insurance premiums are expected to alleviate RMB 13.5 billion worth of burden for insurance premium payers. In some regions, not only have social security insurance premiums been lowered for employers, but also for employees. Of the 1 percent reduction to unemployment insurance contributions made in Guangzhou, the employer rate dropped from 1.5 percent to 0.8 percent and the employee rate was cut from 0.5 to 0.2 percent. And in Yunnan, of the 1 percent total drop in the unemployment insurance premium, the employer rate dropped from 2 percent to 1.4 percent while the employee rate also was reduced from 1 to 0.6 percent.

Reductions to insurance premiums will ultimately add boost  employees’ take-home pay. In Yunnan, for example, if an employee’s monthly salary is RMB 5,000, and was previously paying 1 percent of earnings toward social security, after the 0.6 percent reduction in insurance premiums, they would bring home an extra RMB 240 per year.

About the author: This article was first published on China Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email Dezan Shira & Associates at [email protected].