http://ijfr.sciedupress.com International Journal of Financial Research Vol. 6, No. 3; 2015

On the Rural Social Endowment Insurance in Ethnic Minority Areas: A Case Study of Gannan Tibetan of Province

Wei Wang1 & Haiying Ma1 1 School of Economics, Northwest University for Nationalities, , Correspondence: Haiying Ma, Associate professor, School of Economics, Northwest University for Nationalities, Lanzhou 730124, China. E-mail: [email protected]

Received: June 9, 2015 Accepted: June 29, 2015 Online Published: July 10, 2015 doi:10.5430/ijfr.v6n3p110 URL: http://dx.doi.org/10.5430/ijfr.v6n3p110

Abstract Under the policy of developing northwest China, ethnic minority areas of Gansu province has achieved unprecedented success in economic construction and made progress in developing social security cause which has adapted to the requirements of the social and economic reform. While during the operation of social security system, there appears new conditions and problems. This paper employs urban endowment insurance theory to analyze the pattern and operation mechanism of social endowment insurance in ethnic minority areas (hereafter referred to as minority areas) of Gansu province. It introduces foreign and domestic social endowment insurance patterns, analyzes problems within the social endowment insurance system in minority areas and puts forward the corresponding solutions. Keywords: ethnic minority areas, social endowment insurance, Gannan Tibetan Autonomous Prefecture 1. Introduction Gansu is a multiracial province and a main habitation for ethnic minorities in China. The total population of Gansu province at the end of 2003 was 26.03 million, in which minorities population was 2.27 million, accounting for 8.69% of the total population. The Tibetan population of Gannan Tibetan Autonomous Prefecture (hereafter referred to as Gannan prefecture) reached 0.3256 million, accounting for 49.01% of the local population. Therefore, the author chooses Gannan prefecture as a research area to study the social endowment insurance system, people’s understanding about endowment insurance and pension fund accumulation. 2. Analysis of Foreign and Domestic Social Endowment Insurance Patterns 2.1 The Current Foreign Social Endowment Insurance Patterns Since the 1950s, many economist have got more and more interested in studying endowment insurance problems. In recent years, due to the increasingly serous aging problem in Europe, America and other countries, endowment insurance with Pay-as-you-go system faces payment crisis which has caused intense discussions about the endowment insurance pattern. Most of the economists employs American economist Samuelson’s overlapping generation model for analysis and study. Alen further modifies Samuelson’s model through labor productivity growth. Some economists advocate gradually abandoning the Pay-as-you-go system and setting up partial accumulation or even total accumulation system. Economists represented by Feldstein from Harvard University in the US believe that the Pay-as-you-go endowment insurance system will bring negative impact on personal saving. Meanwhile, many economists begin to study total accumulation endowment insurance system. The Pay-as-you-go endowment insurance pattern appears first and is adopted by most countries especially industrially developed countries as funds operation pattern. However, under the influence of the changing tendency of contemporary population structure, this “intergenerational transfer” pattern faces more and more challenges. Total accumulation system mainly exists in developing countries. As we know, economic growth effect varies under different endowment insurance systems. Economic analysis are mainly focused on the impact of public endowment insurance plan on personal saving and how to decide the best way for endowment insurance plan to support economic growth in accordance to the “golden rule” of capital accumulation. Many economists raises various theoretical views and hypothesis, which mainly includes the aforementioned Feldstein’s “squeeze-out effect theory”, Barrow’s “neutral theory”, Devies’ “life circle

Published by Sciedu Press 110 ISSN 1923-4023 E-ISSN 1923-4031 http://ijfr.sciedupress.com International Journal of Financial Research Vol. 6, No. 3; 2015 theory” and studies conducted by Diamond, Gale, Pale Samuelson on endowment insurance plan acting on national savings and making the golden rule of capital accumulation[1]meet the changing conditions. Looking over the endowment insurance patterns all over the world, American adopted the Pay-as-you-go system for 40 years from 1939 to 1980 and then abandoned it in 1983 when fund balance was only 300 dollars due to payment imbalance caused by rising prices and unemployment. Different from America, Sweden still employs the Pay-as-you-go system with a high tax-compliance rate of about 60%. Japan’s fund operation of the social endowment insurance conforms to the Pay-as-you-go system. Singapore’s Central Provident Fund System is a typical case of the total accumulation pattern. For South Korea and Taiwan in China, their social endowment insurance patterns are between that of Japan and Singapore. 2.2 The Existing Domestic Endowment Insurance Pattern China has adopted the pay-as-you-go system since 1980. As the intensification of economic and political reforms and the issue of aging population, problems of the pay-as-you-go system become increasingly prominent. Therefore, drawing on the foreign experiences and based on domestic realities, China finally proposes a social endowment insurance system combining overall social pooling and individual accounts. It is a relatively more mature endowment insurance system originated by China in the world, with fund raising shared by the state, entities and individuals together. The minority regions also adopt the partial fund accumulation pattern under the social pooling accounts. China's rural endowment insurance pattern meets the requirements of development of productive forces driven by the reform of productive relations in rural areas. It is presented by several forms. The first one is the form of family supporting. An old Chinese saying, bring up sons to support parents in their old age, reveals Chinese rural residents’ concept for supporting the aged. The collective elderly support in rural areas is the “five guarantees” mainly established for those helpless solitary elders without the ability to work and source of living in rural areas as well as a security system for nursing homes. Another form is social endowment. In order to address the problem of rural social endowment insurance, the State Council decided to carry out the pilot work of rural social endowment insurance in 1986. In January, 1991, the State Council launched the General Planning of Rural Social Endowment Insurance. In January, 1992, the Ministry of Civil Affairs issued the General Planning for County-level Rural Social Endowment Insurance in accordance with the fundraising principle of “primary individual contributions supplemented by collective subsidies and supported by national policies”, thereby speeding up the establishment of rural social endowment insurance.Due to the rapid development of China's economy at the early 20th century, rural social endowment insurance has been established in the southeast coastal areas and starts to be established in the central and western inland areas. The establishment of rural social endowment insurance starts late in minority areas and it is hardly established in Gansu minority areas. According to statistics, 2097 counties (cities, districts) in 30 provinces (autonomous regions and municipalities) in China have carried out the rural social endowment work. 82.88 million rural residents are insured, with fund accumulation exceeding 14 billion yuan and 522,400 rural residents having received pensions. 3. The Awareness of Residents of All Nationalities in Gannan Prefecture for Endowment Insurance and the Fund Accumulation Status 3.1 Awareness Analysis of Endowment Insurance The rural endowment insurance system in ethnic regions is not perfect for many reasons, of which the backward insurance awareness is an important factor. In 2005, the research group conducted a survey in counties of Gannan Prefecture to know people’s awareness for endowment insurance. The group made a sampling survey of 1000 people each from different ethnic groups in , Xiahe, Lintan, Zhuoni, Diebu, Luqu and Maqu county, which means a survey among the Tibetan residents, the Han residents, the Hui residents, the Mongolia residents, the Turesidents, the Salar residents, the Baoan residents and the Dongxiang residents through the leaving method to investigate local residents’ awareness of the endowment insurance. The final result is presented in Table 1. It can be seen from table 1 that there are three forms of endowment insurance, namely the major form with up to 60% of acceptance rate, the secondary form with up to 30% of acceptance rate and the least form with up to 10% of acceptance rate. The result shows that social endowment insurance takes the largest proportion, up to 58%, in Hezuocounty (Han people). Old-age supporting by Children takes the largest proportion in Xiahe (Tibetan people), Lintan (Hui people), Zhuoni (Mongolia people), Diebu (Tu people), Luqu (Dongxiaong People), Maqu (Baoan people) and Zhouqu (Sarah people), up to 61%, 56%, 49%, 62%, 57%, 63% and 54% respectively. Therefore, the traditional family supporting still remains to be the major form of elderly supporting. Why more residents in Hezuocounty accept social endowment insurance while more farmers and herdsmen in other regions accept family supporting? Table 1 shows

Published by Sciedu Press 111 ISSN 1923-4023 E-ISSN 1923-4031 http://ijfr.sciedupress.com International Journal of Financial Research Vol. 6, No. 3; 2015 that 58% of people in Hezuocounty choose social endowment insurance, 8% of people choose commercial endowment insurance, 11% choose family supporting while 11% choose to participate in work on their own.The reason is that Hezuocounty, with most of its population investigated being urban residents, belongs to urban areas where the national endowment insurance policy has been in full swing. In other counties, the investigated population mainly are farmers and herdsmen in agricultural and pastoral areas where endowment insurance is hardly established. Most of inhabitants of these ethnic groups, of which Han people is excluded, believe family supporting is more realistic than social endowment insurance. There are the largest population among Han people who accept social endowment insurance, because the number of people who work, covered by social insurance, among Han people is larger than that among other nationalities. As for the awareness of Tibetan people for supporting the elderly, 610 of 1000 investigated people choose family support, 130 people choose collective support, 110 people participate work on their own while 70 people choose social endowment. This means that if Tibetan farmers and herdsmen cannot get family endowment insurance, they would choose collective support. Since Tibetan people accounts for 49% of the local population, their awareness for endowment insurance can represent that of the minority residents in Gannan Prefecture as shown by the following table.

Region Family supporting Social endowment By By By five Social Collective Commercial Other Children participating guarantees endowment supporting insurance forms work on one’s own Hezuo 11 23 58 8 Xiahe 61 11 6 7 13 2 Lintan 56 21 10 9 4 Zhuoni 49 9 15 16 11 Diebu 62 9 19 10 Luqu 57 11 8 14 9 1 Maqu 63 15 13 6 3 Zhouqu 54 12 10 15 9 Data source: systemized in accordance with the questionnaires collected by the research group

The above data show that rural residents in minority areas mainly adopt the form of supporting the elderly through family and children. This situation results from the impact of cultural, social and economic factors. From the cultural perspective, China, for thousands of years, has a traditional culture in which the elderly should be respected. Therefore, family supporting is traditional virtues, especially in farmers’ and herdsmen’s social and cultural environment where values, customs, religious beliefs and educational levels all differ. Therefore, they share high level of recognition towards the traditional way of supporting the elderly through family and children.Its specific reasons are mainly as follows: First, in minority rural areas, most of the farmers' cultural quality is not high, which limits their understanding of national policies. There is not so much farmers over 40 years old who have been into primary school. Some of them even didn’t get any education. So it is hard for them to understand the national social endowment policy. As the small producers in reality, farmers lay emphasis on the immediate tangible benefits. They will support and advocate anything as long as it is profitable. Second, the negative effect of arbitrary charges in rural areas in the past still exist. They are often confused by some negative effects of rural endowment insurance system. Though tax reform is carried out, a variety of charges are banned and voluntary principle of farmers endowment insurance is adopted, no clear legal provisions stipulate how to finance. In some areas, the social endowment insurance system is imposed to carry out, as a result, farmers mistakenly think that it is some kind of charging or arbitrary fining. Third, farmers doubt the fact that paying pension premiums could really make them properly looked after in their old age. Farmers pay premiums now but only can benefit from it ten more years or decades later. They think there are so much uncertainties for the next few decades. During decades of long waiting, national policies may change, which probably means that all premiums are actually paid in vain. Their psychology of distrust is very strong. Some farmers who have been to junior high school or senior high school will consider that the currency depreciation

Published by Sciedu Press 112 ISSN 1923-4023 E-ISSN 1923-4031 http://ijfr.sciedupress.com International Journal of Financial Research Vol. 6, No. 3; 2015 after decades of pension contributions is not sufficient to make them supported in their old age. In addition, with no input subsidies from the state, they think it is better to deposit money in banks than paying pensions. Forth, the backward commodity economy in rural minority areas leads to famers’ weak consciousness of market risk. Meanwhile, the strong national and family consciousness makes family supporting an entrenched concept for them who think “bring up sons to support parents in their old age” is an eternal truth. Therefore, they still choose family and children supporting, the traditional ways to support the elderly. Speaking from the perspective of social factors, state-provided relief, nursing homes and other welfare facilities for the elderly in ethnic minority areas are all empty talks. Since the endowment system is not able to cover rural areas, family supporting there becomes inevitable. Speaking from the perspective of economic factors, it is because the economic foundation of family supporting in rural areas. As for the land system they depend on for existence, the farmers do not have land ownership but only land contract and management rights. In their old age when farmers are most in need of money, they cannot sell the land for required money, so the main source of income of the elderly will be support from their children. Though pastoralists can sell livestock in their old age to support themselves, it is limited. 3.2 Fund Accumulation Social endowment insurance of Gansu province had been moving forward gradually from 1986 when the State Council issued a circular about four rules of labor system reform to July 1997 when the State Council issued Decision on Establishing System of Employee's Unified Endowment Insurance in Enterprise. Gansu provincial government issued Implementing Measures of Reforming Employee’s Endowment Insurance in Enterprise in Gansu Province in May 1996, marking the preliminary formation of new social endowment insurance system. However, the implementation of endowment insurance system in minority areas is limited in towns and cities (manly counties and prefectures). Most of the agricultural and pastoral areas haven’t established endowment insurance system and towns and cities adopt partly accumulated system. The condition is not so satisfactory. Pension fund is insufficient because minority areas are the most typical underdeveloped area in China. The average annual growth of GDP in minority areas is approximately 8 percentage points lower than that of Guansu province. The average growth of gross output value of industry and agriculture is approximately 5 percentage points lower than that of Guansu province. Rural economic development is slow and farmer family’s per capital net income is low. It is found through consulting relative data that the ratio of farmer family’s per capital net income in eastern, middle and western areas in 1990 was 1.79:1.13:1 and increased to 1.81:1.15:1 in 1995. The ratio raised to 2:1.09:1 in 2000 with farmer family’s per capital net income in eastern, middle and western areas reaching 3592.6 yuan, 1956 yuan and 1797 yuan respectively. The minority population is concentrated in rural areas, with urban population accounting for approximately 10% from 1985 to 2001. Rural population accounts for approximately 90%, the lowest being 87.99% in 2000. Economic foundation controls everything and acts as a basis for the establishment of social endowment insurance system. Only if economy develops, pension contribution can be guaranteed. According to Maslow’s demand levels theory, people’s demands develop from low levels to high levels. With low per capita income, people can’t meet their physical demands, let alone long-term high level demands. Therefore, the low level of rural economic development should be taken into account when considering how to establish rural endowment insurance system in minority areas. Research group came to Local Taxation Bureau and Social Security Agency of Ganan prefecture in 2005 to get information about the payments situation of endowment insurance. Fund accumulations are as follows: the balances of social pension funds in 2000, 2001, 2002, 2003 and 2004 are 530 thousand yuan, 620 thousand yuan, 1.29 million yuan, 7.09 million yuan and 5.79 million yuan. Expenditures and incomes basically reach a balance in these years except in 2001 when expenditure exceeds 620 thousand yuan. Though the balance reaches its highest in 2003 (7.09 million yuan), it is not enough to pay the endowment insurance of Ganan prefecture for a year. Viewed from a long-term perspective, pension payment will be a serious problem. The partial accumulation system, namely the personal account under the combined mode of social pooling accounts and personal account, still employs the Pay-as-you-go system because there is no accumulated fund in people’s personal accounts due to low per capita income. Fund accumulation is the key to solve problems of endowment insurance system in Ganan prefecture and even the whole minority areas. 4. Measures to Establish and Improve Rural Social Endowment Insurance System in Ethnic Minority Areas of Gansu Province The new socialist countryside construction is one of the hot topics of the National People's Congress and the Chinese Political Consultative Conference of this year. To improve social endowment insurance system is an important measure to the new socialist countryside construction. One of the main problems that have to be solved in the construction of new socialist countryside is to fully implement social endowment insurance system. Premier Wen Jiabao clearly points out in the Government Work Report that the process of endowment insurance system should be

Published by Sciedu Press 113 ISSN 1923-4023 E-ISSN 1923-4031 http://ijfr.sciedupress.com International Journal of Financial Research Vol. 6, No. 3; 2015 accelerated and all migrant works nationwide should be included into the system to expand the coverage. This has become the guiding ideology for the future development of endowment insurance in China. However, more than 200 million peasants living in minority areas lack a clear understanding of endowment insurance. In the research area Ganan prefecture, 60% of urban population are insured, compared with almost none in rural areas. But the urban endowment insurance fund can barely break even, with no fund accumulation left. Therefore, fund accumulation is the key to solve problems of endowment insurance system in Ganan prefecture and even the whole minority areas. If the basic endowment insurance system in rural areas is established, the coverage of insurance is expanded, the problem of fund accumulation can be solved. So the further improvement of endowment insurance system should be based on rural areas. Here are some proposals: 4.1 Strengthening the Publicity of Insurance Knowledge and Reinforcing Insurance Awareness There are farmers and pastoralists, the latter accounting for 60% of the total population, in agricultural and pastoral areas. With high mobility and low average education level, these people hardly know anything about endowment insurance. The research group researched a village with a dozen more households in Zhuoni and found that only about 3% knew about endowment insurance. Therefore, it is important to renew their ideas, strengthen the publicity of insurance knowledge and reinforce endowment insurance awareness so that they could realize only when they are insured can they be looked after properly in old age. The social endowment insurance should include enterprises with different ownerships and workers with different identities. Depending on the current situation that there are large numbers of farmers and pastoralists with low occupational identities, minority areas should implement classified social endowment insurance systems. Rural labors can be divided into three categories: part of them coming to cities and becoming migrant workers, part of them working in township enterprise and the other part staying in agricultural and pastoral areas to work as pure farmers and pastoralist. Different social endowment systems should be established for different kinds of farmers and pastoralists. For pure farmers and pastoralists, their endowment insurances are composed of their own contributions and government subsidies. For part-time farmers and pastoralists, an independent social endowment system with low level and low proportion of payment should be established. For non-farmers and non-pastoralists who have stable jobs in cities, they can be included into the urban endowment insurance system. Besides, a multi-level endowment insurance system should be built to meet the demands of farmers and pastoralists with different levels. Due to the limit of economic development and insurance awareness, it is impossible to design a united and generally accepted social endowment insurance system for farmers and pastoralists in a short time. That’s why a multi-level endowment insurance system should be established. A considerable advice is to build a basic endowment insurance system with broad coverage and low level that requires the participation of all farmers and pastoralists between the age of 20 and 60. 4.2 Providing Fiscal Subsidies and Increasing the Faith of Farmers in Minority Areas in Participating in Endowment Insurance Due to minority areas’ particularity of underdeveloped economy, financial departments should bear some responsibilities of social insurance. Finance at all levels should make expenditure budgets of social security fund every year, reasonably adjust the structure of fiscal expenditure and act as the main channel for raising social security fund to guarantee a steady and reliable source of security fund. Farmers and pastoralists between the age of 40 and 55 can employ the endowment insurance payment method of country and individuals each paying half through the way of making up the difference of value. Farmers and pastoralists above the age of 55 would be supported by the government and provided with 100 yuan per person every month. Because of the collective economy of rural areas, people who don’t participate in endowment insurance can’t get the subsidy. This seems unfair to them because collective income should be distributed equally to everyone. If only those who participate in endowment insurance can get a subsidy of 100 yuan, others would feel that they lost 100 yuan. Then people would like to participate in endowment insurance. This is a way to increase the faith of farmers and pastoralists in minority areas in participating in endowment insurance and accelerate the socialization process of rural endowment insurance. In conclusion, endowment insurance cause in minority areas have set up correct principles and direction after the previous stage of reform. Problems at the present stage are inevitable in the process of deepening reforms. Therefore, minority areas should work under the general guiding ideology of the future development of endowment insurance cause in China, properly adjust the paths of reform, accelerate the establishment of rural endowment system, further clarify regulations and standardize operation, thus making endowment insurance system reform moving steadily towards the established basic goal, accelerating the pace of the new socialist countryside construction and promoting the healthy development of economy in minority areas of Gansu province and even the entire nation.

Published by Sciedu Press 114 ISSN 1923-4023 E-ISSN 1923-4031 http://ijfr.sciedupress.com International Journal of Financial Research Vol. 6, No. 3; 2015

References An, Z.L., & Dong, Y.G. (2002). On the Choose of Rural Endowment Insurance Pattern in China. Journal of Northwest Sci-Tech University of Agriculture and Forestry (Natural Science Edition), 4(2), 59-60. Cao, X.B. (2001). Ideas for Designing Rural Social Endowment Insurance System. Fiscal, (7), 82-83. Chen, G.H., & Mao, C.Y. (2005). Comparison and Reference of Rural Endowment Insurance Systems of German and Japan. Theoretic Exploration, (1), 67-69. Ma, M.N., & Ma, J.H. (2005). Exploration of the Patterns of Fund Operation and Management of Social Endowment Insurance. Statistical Education, (3), 48-52. Statistical Yearbook of Gansu. (2004). Statistics Bureau of Gansu Province. China Statistics Press. Tang, X.P. Exploration of New Ways of Rural Endowment Insurance. China-Insurance. Retrieved from www.china-insurance.com Wang, L.F. (2005). Inspiration of Comparing Endowment Insurance Systems between America and Sweden on the Reform of China. Journal of Nanjing University of Science and Technology, (3), 57-60. Xu, Z.P. (2005). Primary Study on Improving Endowment Insurance System in China. Social Sciences Review, (4), 77-90. Yuan, Z.G. (2001). Economic Analysis of Selecting Endowment Insurance System in China. Economic Research, (5), 13-19. Zhang, G.P. (2005). Existing Problems and Countermeasures of the Current Social Security Fund System. Finance and Economics, (2), 24-26. Zheng Bingwen. (2001). Social Endowment Insurance Patterns and Economic Development in East Asia. Word Economy, (10), 5-36.

Published by Sciedu Press 115 ISSN 1923-4023 E-ISSN 1923-4031