China should update its endowment insurance system, extending welfare to all its citizens instead of only urban employees, as at present, said an article in International Finance News.

Along with its economic transformation over the past 50 years, China's endowment system has evolved from the old State-sponsored system into the current socially-pooled mechanism.

In the early days after the founding of New China in 1949, the endowment of retirees was wholly supported by the State. Retired persons regularly received pensions from their work units.

Starting in the early 1980s, when the country launched its reform and opening-up policy, the endowment system began to change accordingly. The State-investment system gradually altered into being a publicly-invested one, the article said.

Employees now turn a portion of their income over to a social endowment fund regularly and will get a pension from the fund when they retire.

This transformation has gone smoothly.

But there is a defect in the country's pension and insurance system: Only corporate employees, not all citizens, enjoy welfare, the article said.

In the early 1950s when the endowment system was initiated, it was limited to employees in government or State-run and collective enterprises. Later as it was improved, employees of rural enterprises were included. But some people are still excluded from this welfare.

In 1990, China became an aging society. That year it was registered that men over 60 and women over 55 accounted for more than 10 per cent of the total population of 1.1 billion. Of these old people, 20 per cent, or 2.3 million, were retirees, a fact that means only one out of every five old people in the early 1990s had a guaranteed old-age pension and insurance.

All citizens should be able to join the system to alleviate the common financial problem that faces all aged people.

It is also the constitutional right of all people to be able to join an insurance system to provide for them when they retire, the article said.

The Constitution says that: "Citizens have the right to material assistance from the State and society when they are old, ill or disabled;" and the State must develop a social insurance system that will allow citizens to enjoy this right.

This constitutional stipulation clearly defines the scope of the endowment system: all citizens, not some of them. And the constitution pinpoints those who are "old, or disabled," situations which all employees, not only corporate ones, may encounter.

Judging from this constitutional principle, the current endowment system has only fulfilled the first step of its ultimate goal to support all citizens, the article said.

The insurance system for retirees is the core of the endowment system. But it cannot replace the role of a comprehensive endowment system to support all the aged. A large number of unguaranteed people pose a potential challenge to the sustainability of the system, the article said.

It is urgent that China start extending the system to cover all people. The time is now ripe, the article suggested.

China's economic strength has caused its economy to grow rapidly and steadily since the 1980s, and by the end of the 1990s a unified endowment system for all corporate employees was established.

There are now two ways of improving the coverage of this insurance system. One is to adopt a gradual method, the article said.

Firstly, the State must provide for all urban labourers, including self-employed people, in the old-age insurance system. Their entry into the system will double the insurance coverage, the article said.

Shanghai set an example in 1995. In 2000 its new regulation stipulated that employees should pay 6 per cent of their average income to an insurance fund. Private business owners and their employees should pay 8 per cent of the 750 yuan (US$90.4) base line, and free-lance workers should pay as much as 18 per cent.

In practice, there are problems in the differentiated payment rates, the article said.

Free-lance workers have not shown much enthusiasm to pay their insurance premiums, because they are required to pay much more than other people.

The definition of free-lance workers should also be clarified. Who and people within which age range are classified as free-lance workers must be clearly stipulated in the policy.

Only when these problems are solved can more free-lance workers be attracted into the insurance system.

Secondly, rural enterprise employees should be brought into the system.

Since the early 1980s, when the country launched its reform and opening up policy, rural enterprises have achieved rapid and smooth development, laying down a solid financial foundation for their entry into the insurance system, the article said.

Shanghai again took the lead in this step. In 1996, it issued an official document for the launch of retirement insurance in rural enterprises.

But despite drawing more people into the insurance regime the application of this system in rural areas has encountered some problems, the article went on.

The spread of insurance in rural areas should be a natural branching out of the urban insurance system, so that it can be coordinated by the State.

But currently it is organized by civil affairs departments as opposed to the urban endowment system which is administrated by labour and social security departments.

This has brought about many problems in practice, the article said.

The third step involves workers who do occasional, manual jobs in cities, the article said.

Many rural labourers come to cities to find jobs. Some stay in urban areas for a long time. Old-age insurance should be granted to them to protect their interests and help maintain social stability, the article suggested.

If these three measures are achieved, at least 50 per cent of labourers, totalling more than 300 million people, across the country, will be covered by the endowment system, the article forecasts.

To improve the coverage of insurance further, a second method needs to be introduced: pension tax.

Every one above the age of 18 should be taxed to pool money for a social insurance fund, the article said.

In a country with a population of more than 1.2 billion, however, this method cannot be applied instantly. It should be first trialled in key cities and in the more developed eastern areas and then be extended to middle and western provinces.

This is the best way to bring all Chinese citizens under the umbrella of retirement insurance, the article said.