According to the latest issue of China Economic Weekly, the Ministry of Labor and Social Security announced that the country's pension fund had a deficit of 800 billion yuan (US$100 billion) by the end of 2005.

Another somber fact is that China is quickly becoming an ageing society.

A sample survey of the population at the end of 2005 indicated that 144 million people were aged over 60 or above, accounting for 11 percent of the total population. The figure would jump to more than 28 percent by 2050.

A research report by the Deutsche Bank estimated that every 100 workers would have to support 79 retirees in 2050 if China does not change the current limits on the retirement age. Based on that, some experts suggested revising the retirement age and extending working lives to ease the pressure on the pension fund.

China, the world's most populous country, has yet to feel the pressure of the ageing population. But the problem can no longer be ignored, otherwise the ageing population will cast a huge shadow over China's economic development in the coming decades.

The ageing problem exists in many countries other than China, but most developed countries have an annual GDP of between US$5,000 and US$10,000 for each of its citizens.

In contrast, China only had an annual GDP of US$1,700 per capita last year it will experience an ageing population before it became affluent.

To make things worse for China, the country has not established a pension plan covering all of its citizens.

The current pension plan only includes employees in State-owned or collectively owned enterprises in cities. Civil servants have an independent pension plan.

About 10 percent of rural residents have set up their own small-scale pension plans. The rest of China's rural citizens, the majority of them, are excluded from any basic pension insurance.

Currently only 25 percent of the working-age population is covered by any kind of old-age pension plan.

Without proper handling, the ageing problem could trigger dire consequences.

As the number of senior citizens increases, the government will have to spend more on pensions. Government expenditure on retirement pensions increased by 37.4 times from 1982 to 2000.

Medical care and daily nursing for senior citizens would also see a huge increase in demand, which should be taken care of within the community.

Senior citizens also have needs in terms of entertainment, community participation and other forms of recreation.

Under the market economy, senior citizens will face a larger risk of being exposed to poverty, and the authorities will be called on to deal with this problem.

Some experts claimed China would have a 15-year "golden period" from this point on because there are 10 million people of working age, making the country's population age structure fitful for harvesting a "demographic dividend."

According to recent demographic research, nations in which a relatively large share of the population have reached the prime age for working and saving may enjoy a boost to income growth stemming from the higher share of the population that is working, from the accelerated accumulation of capital, and from reduced spending on dependents. This phenomenon is known as the "demographic dividend."

Experts suggest that the country should make good use of the time because the combined effect of this "dividend" and effective policies in other areas can stimulate economic growth and settle the problems caused by an ageing population.

However, these experts seem to forget that there will not be such a dividend if the labourers do not have adequate positions or cannot earn good money from their work.

The current situation in China is that the unemployment rate worsens every year. Many cannot find a position and the average salary cannot be increased significantly.

To make things worse, education is more expensive for most families since the beginning of the practice to make education "marketized." Accordingly, more children, especially those from rural areas, lose their chance of getting educated. As a result, the average new worker that comes of age does not have adequate education qualifications.

Hence, China has a lot of problems to tackle before it has a chance to enjoy the so-called "demographic dividend" like the developed countries.

A real fix for cushioning the shock on economic growth posed by the ageing population is to make good use of resources and time at this moment to construct a social security system covering all citizens without difference.

Many people, especially those who are middle-aged and older, have a good memory of the social security system under the planned economy. Even though the national economy was less vibrant, people were taken care of.

Since the country launched a market economy reform, a new social security system is yet to be established after the old ones were dismantled.

With social wealth much more abundant than before, establishing a new social security system would not be difficult as long as the decision-makers hold firm.

When the country takes care of the basic needs of its citizens, it will see sound economic growth and the pension fund deficit will not cause substantial damage to the lives of its senior citizens.

(China Daily December 19, 2006)