Beijing: In a bold move to secure the nation’s social safety net, China’s Supreme Court recently declared that any agreements between employers and employees to bypass mandatory social insurance contributions are invalid. Yet, despite this ruling, reports reveal that many small and medium-sized enterprises (SMEs) are finding ways to evade these obligations, highlighting the tension between legal mandates and economic pressures.
The Supreme Court’s interpretation aims to stabilize the national pension system, which a Chinese Academy of Social Sciences (CASS) report projects could face depletion by the mid-2030s. While the decision intends to protect workers’ welfare and enhance pension funding, its practical enforcement has proven difficult, particularly among smaller firms grappling with weak consumption, falling home prices, and squeezed industrial margins.
Investigations by Reuters found that only three out of eighteen employees interviewed nationwide reported that their employers were fully paying social insurance contributions. Many others said that their companies had reclassified portions of their salaries as “social insurance subsidies” without actually contributing to the official system. For example, a supermarket worker in Guangxi revealed she was asked to sign a contract relinquishing company-funded contributions, while a real estate agent in Guangdong experienced a similar scheme where a segment of her wages was rebranded as a non-contributory subsidy.
A survey conducted by Zhonghe Group in August found that merely 34.1% of firms were fully compliant with social insurance rules, while nearly 30% reported disputes over contributions during the past year. Experts warn that such practices, though widespread, undermine both workers’ long-term security and the government’s broader strategy to transition to a consumer-driven economy.
China’s social insurance system requires employers to contribute roughly 25% of an employee’s gross income, covering pensions, medical care, unemployment, maternity, and work injury benefits, while employees contribute around 10%. However, many lower-wage workers resist even their personal contributions, citing job insecurity and rising living costs.
Despite central authorities implementing real-time monitoring and policy interventions, compliance remains a challenge. Analysts note that balancing immediate business survival with long-term social welfare goals will continue to test Beijing’s regulatory framework as it navigates economic reforms and social security sustainability.