David Daokui Li calls for 1.25 trillion yuan pension increase for Chinese farmers
High-profile Tsinghua economist exposes artificial inequality among different classes of Chinese people and says the Chinese government can absolutely afford it.
David Daokui Li is a Professor of Economics and Director of the Academic Center for Chinese Economic Practice and Thinking (ACCEPT) at Tsinghua University. He has been very active on Chinese social media, including opening a video channel on WeChat, China’s top messaging app, releasing a short video of him talking daily. He posts the same videos on his YouTube channel.
His most viral video on WeChat was just dropped last weekend, where he called for the Chinese government to increase its pension payout to 800 yuan, or $110, for its 130 million farmers under 60.
The video, registering over 20,000 likes in three days, doesn’t involve rocket science. It’s just common sense for people who have paid attention. As we have covered here
Xu Shanda, former deputy head of the State Tax Administration, also highlighted a while back that
In 2006, the State Council decided to abolish the Agricultural Tax [A hefty tax on any individual/entity engaged in agricultural activities. It has been in place since 1958, but similar taxes date back around 2,600 years in China.] and the "three deductions and five charges". ["three deductions" refer to public reserve funds, public welfare funds and management fees; "five charges" refer to charges for rural education, family planning, militia training, rural road construction and subsidies to entitled groups. These are additional taxation on farmers besides the Agricultural Tax, which oftentimes exceeded the Agricultural Tax.]
The rationale behind the 2006 decision was that in the early years of industrialization, farmers supported urban workers and rural areas supported cities. Basically, wealth created in agriculture and by farmers was drawn to industrialization without compensation. The agricultural tax and the "three deductions and five charges" were the explicit contributions of farmers to the government.
But there are also implicit contributions. To illustrate this with a simple example, during the Second Plenary Session of the Eighth Central Committee of the Communist Party of China (CPC) in 1956, Chen Yun, the then Vice Chair of the Central Committee, proposed 50 billion units of compulsory labour for farmers in the Second Five-Year Plan (1958-1962). Just think about the capital that could be generated from 50 billion units of labour, especially at that period of time! Some of you may still remember the history: rural labor force were required to labor for the government for a certain number of days every year; the government didn't provide food, clothing, or wages. For instance, if a production team [the basic unit of China’s rural collective under the people's commune 人民公社, a multipurpose local organization which assumed both productive and administrative authority during 1958-1984] of 100 laborers was assigned 1,000 units of labor, either 10 people worked for 100 days or 100 people worked for 10 days to meet the 1,000 units of labor. So, compulsory labor served as a channel for the accumulation of capital nationally.
That’s still not the whole picture of the implicit contributions. The price scissors, meaning the price disparity between agricultural and industrial products, were implemented under the direction of Chairman Mao (Zedong) to “prioritize capital accumulation over substantial improvements in people's living conditions." (较少改善民生,较多提取积累)
With agricultural product prices deliberately kept low while industrial product prices were raised to generate accumulation, resources drawn from people's welfare were transformed into state-owned capital. Therefore, China’s state-owned capital also carries an implicit debt towards farmers.
Since the abolition of the Agricultural Tax and the "three deductions and five charges," China has reversed its national strategy to what is now “supporting agriculture with industry, and rural areas with urban development” (城市反哺农村,工业支援农业). This has not, however, entirely resolved the accumulated debt issues — somewhat akin to what I mentioned earlier about the accumulated VAT credits.
Numerous other Chinese economists have also called for increasing the social safety net in recent months, including prioritizing farmers in pension increases.
Below is David Daokui Li’s video and transcript
First, from a moral standpoint and in terms of improving the overall level of social welfare, we should raise farmers’ pensions—this is something we owe them.
Second, the country has the capacity to do so.
Third, increasing farmers’ pensions will boost consumption. Once consumption rises, part of the increase in national fiscal revenue will offset the expenditure. So, all things considered, this is not an overly costly matter. For the development of China’s economy, this is a very positive step.
Let’s discuss the issue of raising the basic pensions for farmers. Currently, farmers’ basic pensions are far too low. On average, rural elderly aged 60 and above receive less than 200 yuan per month, while the average pension for employees of private enterprises is just over 3,000 yuan—which is not particularly high, but still significantly higher than 200 yuan. Meanwhile, pensions for government officials and public institution employees average over 6,000 yuan, highlighting a significant disparity.
Farmers should be entitled to pensions. Some may question this, arguing that farmers have not paid into the pension system, so why should they receive pensions? In fact, farmers were the earliest contributors to social security in our country, even though it wasn’t called that [pension] at the time. During industrialization, farmers made numerous sacrifices, such as paying agricultural taxes and contributing grain quotas, which were only abolished around a decade ago. Since the 1990s, many farmers have migrated to cities for work but have not received equal benefits. Moreover, rural land requisition has generated profits that have not been equitably shared with farmers. In various ways, farmers have already contributed significantly to national development, including contributions equivalent to pension funds. Their contributions to urban residents have never ceased.
From another perspective, does the country have the ability to increase farmers’ pensions? Absolutely. Let’s break it down. Currently, there are 130 million rural elderly aged 60 and above. [An increase to 800 yuan, or $110] The annual pension expenditure amounts to 1.25 trillion yuan. While this seems like a large sum, it is relatively modest compared to China’s total annual fiscal expenditure of nearly 30 trillion yuan. A little over 1 trillion yuan is enough to cover pensions for half of China’s elderly population. Additionally, the proportion of pension expenditures in China’s fiscal spending is far lower than that of developed countries, leaving considerable room for growth. As China’s economy gradually returns to a stable growth trajectory, fiscal revenue will also expand significantly. Furthermore, increasing pensions for farmers will stimulate consumption.
When farmers’ pensions are increased, their consumption will rise. Higher consumption will drive higher sales for businesses, which will, in turn, alleviate the current intense competition among enterprises. With stronger domestic demand, there will be less pressure for businesses to aggressively compete in export markets, which will help improve China’s international relations and image.
In summary, we conclude that, first, from a moral standpoint and in terms of improving overall social welfare, we should raise farmers’ pensions as this is something we owe them. Second, the country has the capacity to do so. Third, increasing farmers’ pensions will boost consumption, and the resulting increase in fiscal revenue will partially offset the costs. Therefore, this is not a costly endeavor overall and is highly beneficial to China’s economic development. I hope these calls for action can be realized as soon as possible.