Chinese cities are so broke, they're cutting medical benefits for seniors

Hong Kong CNN

China's government is strapped for money after years of enforcing the costly "zero-Covid" policy. It has cut medical benefits and plans to raise retirement age. These are deeply unpopular measures that fuel widespread public anger.

Since January, thousands of elderly people are protesting the large cuts in monthly medical benefits. In four major cities, they have gathered to demand that local officials reverse their decisions.

Analysts say that the changes are part a major national overhaul intended to cover deficits of public medical insurance funds. These funds have been depleted after paying for mass tests, mandatory quarantine, and other pandemic control measures over the last three years.

Chinese media have dubbed the demonstrations a "gray hair movement." This is another rare rebuke to authorities following widespread protests in November over Covid lockdowns.

The anger may further damage the Communist Party's reputation, already damaged by Covid locksdowns, bank scandals and real estate crises.

Craig Singleton is a senior fellow with the Washington-based Foundation for Defense of Democracies. He said that Chinese pensioners see these reforms as another broken party pledge, which could have a profound impact on their quality of living in light of China's impending demographic crisis.

Chinese officials seem to be concerned that these protests may spread further.

After the protests began in early January, censors removed hashtags referring to 'Wuhan Health Insurance' from Weibo’s Hot Topics section. The censors also removed photos and videos from social media.

Beijing's new initiative to raise the retirement age of all workers is fueling anger.

Dire finances

Local governments were responsible for enforcing pandemic control measures that are no longer in place. This resulted in an increase of expenditures, while their revenue from sources like land sales fell.

Concerns were raised after Guangdong Province and the City of Dalian announced that in 2022 they would use public funds for medical insurance to pay for Covid mass testing.

This issue was further exacerbated by the National Healthcare Security Administration's (NHSA) statement that the money should not be used this way, and local governments should pay for the tests with their own budgets.

The state media at the time reported that other regions had already spent money on mass tests. These reports raised concerns about the sustainability of an already underfunded system.

There is no way to know how much China spent on its strict zero-Covid policies or where the money came from. At least 17 out of China's 31 provinces revealed how much they spent to fight the pandemic.

Guangdong was the largest spender in China. In 2022, it spent 711 billion Yuan ($10.3billion) on vaccinations, tests and emergency benefits for doctors, an increase of over 50% from the previous year.

Zhejiang spent 43.5 billion Yuan, and Beijing 30 billion respectively.

George Magnus is an associate with the China Centre of Oxford University. He said that local governments were running out of funds or, in some cases, money.

The crunch was caused by funding zero-Covid, but there are other factors at play, including the increasing burden of age-related expenses.

He said that the government's finances have been impacted by interest costs on trillions in debt, as well as falling revenue from land sales.

Analysts in China estimate that China's government debts could have exceeded 123 trillion Yuan ($18 trillion) by the end of last year. Nearly $10 trillion of this debt is referred to as 'hidden' debt. Some cities have a debt crisis so severe that they are unable provide basic services like heating homes.

The shortfall

China's limited social safety net is made up of a health insurance system. The scheme covers a part of the medical costs for workers and retirees in urban areas.

The system consists of two parts: individual accounts funded by compulsory payments made by workers and employers and a pooled fund of employer contributions. The personal account pays for outpatient and medicine costs while the collective account pays for hospital visits.

Retirement income is paid directly into the retirement account of retirees.

Payments to all personal accounts have been reduced after the reforms that began in January.

Senior citizens, who have greater medical needs, tend to be more sensitive to changes. The central city of Wuhan saw a monthly cutback of up to 70% for retirees.

The NHSA released a statement shortly after protests in Wuhan, and in the port city of Dalian in the northeastern region. They defended the policy by saying that even though the people had less money on their own accounts, more funds would flow into the collective account.

For protesters however, it appeared that local governments were using their own accounts to cover shortfalls in the collective pool.

Singleton stated that the idea of robbing the elderly to pay for Covid tests and other costly pandemic measures would never be popular with the public.

A society that is aging

The 'gray-hair movement' in China is indicative of an important issue that the Chinese government must address: how to take care of a society aging rapidly, where 400 millions people or 30% of its population will be 60 years old or older by the year 2035.

China's health care system, as well as other public services, are under financial pressure due to the increasing number of retirees compared with the number young people entering the work force.

In 2019, a leading government think-tank predicted that the state pension fund would run out of money by 2035 because of a shrinking workforce.

Magnus stated that '[the] crunch in health insurance is just a stone's thrown away from the bigger one affecting pensions and workers may become agitated by poor health and pension security'. It's possible that protests from elderly citizens could spread.

In order to address this challenge, the government has launched a new campaign to raise the retirement ages.

Li Qiang said that in March, the new premier of the country would carry out rigorous analyses and studies to develop a prudent policy 'at the appropriate time'.

Tens of thousands have already expressed their anger on social media in response to the news.

People who were close to retirement expressed their anger at the prospect of a delayed pension. The younger generation argued they would be able to find fewer jobs due to increased competition.

Magnus stated that a resolution must be found to the issue of financial capacity for local governments in order to cover current and future age-related costs. Magnus said that if the situation continues, it could result in rolling crises, job cuts, and reduced public services and goods, which could cause political problems.

Local governments are faced with many expenses, from health care to infrastructure. They are also facing a severe cash shortage, after three years of pandemic control and the real estate crisis have depleted their coffers.

Some regional governments might roll back changes to health insurance after hearing the outcry, but 'others may be forced to do it because they are really short of money and cannot find any other income sources,' said Frank Xie a business professor at the University of South Carolina Aiken.