NTA Country Report
Lifecycle Deficit, Transfer and China’s
Great Transformation
Ling Li1
China Center for Economic Research, Peking University, China
&
Qiulin Chen
China Center for Economic Research, Peking University, China
&
Yu Jiang
China Center for Economic Research, Peking University, China
2009-1
1
Contac person: Dr Ling Li
China Center for Economic Research, Peking University
Beijing, 100871, China
Email: Lingli@ccer.pku.edu.cn
Abstract
National Transfer Accounts (NTA) is a systematic approach to introduce age into the analysis of
national income and accounting. We will make use of the China Household Income Project (CHIP)
data of the year 1995 and 2002 to construct China’s National Transfer Account, and discuss
China’s special topic: How to read out China’s Great Transformation from the NTA account.
1. Introduction
National Transfer Accounts (NTA) is a systematic approach to introduce age into the analysis of
national income and accounting. It provides with the analytical bases and empirical frameworks to
capture the process and implications of age structure transition on (a) dynamic macroeconomic
growth through income, savings, and investments, and (b) inter-generational equity and poverty
alleviation through asset allocations and transfers. Its scope of analysis encompasses the working
of the entire economy in term of public and private institutions, individuals and households, and
policies and programmers. Thus, the outcomes of construction and analysis of NTA are useful for
design and implementation of long term economic growth and intergenerational equity with
special reference to demographic changes. The outcomes are of particular relevance and
usefulness for China, because its economic policies and programmers have been aimed at long
term economic growth with equity of all descriptions in the light of problems and challenges of its
population size and growth and age structure transitions.
In China’s volume, we will make use of the China Household Income Project (CHIP) data of the
year 1995 and 2002 to construct China’s National Transfer Account, and discuss China’s special
topic: How to read out China’s Great Transformation from the NTA account.
The Construction of NTA is new for China. This paper is an attempt at these estimations for China
in 1995 and 2002.
The rest of the paper is organized as follows. Section 2 describes China’s macroeconomic and
demographic background in the context of construction of NTA. Section 3 gives the estimation
frameworks and initial estimation results on aggregate controls, life cycle deficits, and age
reallocations; Section 4 includes preliminary conclusions and implications.
2. Macroeconomic and demographic background
2.1 Economic and population growth
China saw rapid economic growth at the average rate of 9.5% since 1978 when the market-orating
reform was conducted, and the nominal GDP at 2008 has reached 30.067 trillion RMB. China has
completed its transition from a centrally planned economy to a market based economy. In moving
from an economy under socialism that was closed to the outside world and plagued by low
efficiency and stagnation, China has become, in the last two decades¸ one of the fastest-growing
economies in the world. In less than twenty years' time, between 1982 and 2008, real GDP per
capita for the Chinese population, adjusted for purchasing power parity (PPP), rose more than
four-fold – a record unmatched elsewhere in the world.
The per capita income has also been increased significantly, however, with big gap between the
rural area and urban area. In 2005 the per capita income in the urban area is 10493 Yuan while the
per capita income in the rural area is 3249.5 Yuan (The exchange rate between $ and RMB Yuan
is 7.8 Yuan RMB per $).
Figure 1 per capita GDP and Growth Rate, China, (1978-2005)
16000
18
14000
16
12000
14
12
10000
10
8000
8
6000
6
4000
4
2000
2
0
0
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
per capita GDP(Yuan,current price)
GDP growth rate(%)
Source: China Statistical Yearbook
The population of China in 2004 is 1299.88 million, with the growth rate 5.87, birth rate 12.29,
mortality rate 6.42; The PRC was founded in 1949 with the population of 450 million, after almost
a century of the war and disasters. During 1949 and 1970s, the Chinese government took the
policy of encouraging birth, which leads to rapid population growth. In 1978, the population is
962.6 billion; more than double that of 1949.
Figure 2. China’s Population (1978-2004)
China's Population(Million)
1400
1200
1000
800
600
400
200
0
962.59
987.05 1058.51
1978
1980
1985
1143.33
1990
1299.88
1211.21 1267.43
1995
2000
2004
Notes:Not including Taiwan,Hongkang and Macao
Source: China Statistical Yearbook
Ever since the 1970s, China had conducted the birth control policy (“one child policy”) and gain
great success. As a result, the demographic characteristic has been greatly changed during recent
20 years. Form 1952 to 2004, the birth rate has been declined from 37‰ to 12.29, which took
place mainly after 1970s, when the Chinese government commenced the policy of birth control.
The Mortality rate has declined from 17 in 1952 to 6.42 in 2004. The progress is largely attributed
to the improvement of public health conditions and the elimination of choric disease, which is the
major threaten to the people some forty years ago. After all, the Chinese population has shifted
from high birth rate and high mortality to low birth rate and low mortality. For more detailed
discussion on the transition of China’s demography, please see Andrew Mason (2002).
Figure3 Demography of the Chinese Population (1952-2004)
Demographic Characters of Chinese Population(‰)
40.00
35.00
Birth Rate
30.00
Mortality
25.00
Growth rate
20.00
15.00
10.00
5.00
0.00
1952 1957 1962 1965 1970 1975 1980 1985 1990 1995 2000 2004
Source: China Statistical Yearbook
2.2 Public Sector
Pension System
China is now an aging society. As the aging of the population quickens, the number of elderly
people is becoming very large. This trend will reach its peak in the 2030s. Just like other social
security systems, China’s old-age insurance consists of multiple levels and has big gap across
sectors and areas.
In the urban area, the “basic old-age insurance system for the enterprises employees” run by the
government is dominating. Enterprise employees who have reached retirement age and who have
paid their share of the premiums for 15 years or more shall be entitled to collect a basic old-age
pension every month after retirement. Premium is paid by both enterprises and employees.
Generally the premiums paid by enterprises will not exceed 20 percent of the total wage bill of the
enterprise, with the specific proportion determined by local government. Individual employees
pay 8 percent of their wages as premiums, whereas self-employed individuals pay about 18
percent of the average wage in their locality.
The pension system for the government agencies and public institutions was originally funded
directly by government finance. Ever since 1990s, some localities in China began to probe the
procedures of reforming the retirement system in such institutions to raise the retirement pension
funds through the social pool program.
However, all over the world, the coverage of pension is still limited. Expect for the employees in
enterprises and government agencies, the remaining population is rarely covered by old age
insurance, especially in the rural area, where individual saving and intra-house transfers play the
key role in supporting the aging. Ever since 2007, some local governments began to make some
experiment to supply the pensions to the rural and urban citizens by a pay-as-you-go system with
some government subsidies.
Healthcare
Public hospitals dominate the supply of healthcare service in China, which account for over 90%
of healthcare resources in China. 93.31% of hospital beds and 94.23% of health professionals are
owned by states-owned hospitals. All of public hospitals are classified as non-profit institutions
rather than for-profit ones. Ever since the 1990s, the Chinese government decreased its subsidy to
the public hospitals, and took policies explicitly or implicitly to allow the public hospitals make
profit by themselves. Government subsidy accounted for 30% of expenditures of the public
hospitals in 1980s, but just 10% at present. As the result, over-supply of service became common,
and the healthcare expenditure grew rapidly. The per-outpatient-visit fee grew from 10.8 Yuan in
1990 to 126.9 Yuan in 2005, while the CPI just doubled during the same time. High healthcare
burden is considered one of the most serious social and economic problems of China. By a survey
conducted at 2003 by the Minister of Health, 48.9% of patients who should see the doctor choose
not to see the doctor, while over 70% of them are due to high price. Due to high prices, the poor
populations utilize less healthcare service. (Figure 4)
Figure 4 Healthcare: The poorer get the less service
1993
1998
inpatient admission rate
per 1000 rural China
45
40
35
poorest quintile
2nd poorest
middle quintile
30
25
2nd richest
richest quintile
20
income quintiles
Source: 3rd National Healthcare Service Survey, MOH, 2003
Ever Since 1998, China began to construct three social healthcare insurance systems so as to cover
all populations over the nation. The first is Basic Health Insurance System for the Urban
Employees, which began in 1998. By the end of 2007, some 109.02 million people around China
had participated in the basic medical insurance program, including employees and retirees. The
basic medical insurance program covers all employers and employees in urban areas, including the
retired. The funds come mainly from premiums paid by both the employers (6% of the total wage
bill) and employees (2% of his or her wage).
On 2003, China put forward the New Cooperative Medical Insurance in the rural area. The
insurance is voluntary. The premium is 100 RMB each year, of which 80 is supported by central
and local government while the remaining 20 is from the individual. The insurance covers mainly
the inpatient medical expenditure and part of outpatient expenditure. As the funding scale is low,
the insurance benefit is limited.
On 2007, China put forward the Basic Health Insurance System for the Urban Citizens. The
insurance is voluntary, with the premium being 200-300 RMB per year, of which 80 RMB paid by
the government and the remaining paid by the individuals.
As the result, the proportion of government expenditure to the total health expenditure decreased
from 1990 to 2000 and increased from 2000. (See Figure 5)
Figure 5 the Structure of China’s Total Healthcare Expenditure
Education
The Chinese education system can be basically divided into two parts, compulsory education and
voluntary education. The compulsory education includes elementary school and junior high school.
The Law of Compulsory Education ensures that all child of school age should go to school.
Compulsory education is mainly supplied by the public schools. The enrollment rate of elementary
school and junior high school is 99.15% and 95% respectively. Government subsidies cover the
cost of public schools, and the responsibility is taken mainly by the local government.
Figure 6 shows the enrollment rate for variety levels of schools; Figure 7 shows the component of
education expenditures. Compared with the component of healthcare expenditures, we can see
clearly that the government expenditure accounts for the majority of education expenditure.
Figure 6 Enrollment Rate of variety levels of schools
120
99.15
100
95
80
60
52.7
41.4
40
21
20
0
Kindergarten
Elementary
school
Junior high
school
Senior high
school
University
Figure 7 Component of education expenditure
700000
600000
million yuan
500000
400000
300000
200000
100000
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Gov. EE
Social Organizations and Private EE
Donations & Fund-raising
Tuition & Miscellaneous Fee
2003
Other
Challenges to China’s Education include growing regional gap and gap between the rural and
urban. Figure 8 shows the differences of education expenditure per pupil for some cities and areas.
Shanghai and Beijing are two of the most developed cities in China, while Yunnan, Hubei, Shanxi
and Guizhou are located at the less developed middle and western area of China.
Figure 8 Education Expenditure per pupil, 1999
Education Expenditure per Pupil, 1999
1200.00
primary
U.S. Dollars
1000.00
junior
secondary
senior
secondary
800.00
600.00
400.00
200.00
0.00
Shanghai Beijing
3. Data and Methodology
3.1 Data Description
Yunnan
Hubei
Shaanxi Guizhou
We use the Chinese Household Income Project (CHIP) data of year 1995 and 2002. The surveys
are conducted by the China Social Science Academy every 7 years; So far, three waves of surveys
have been conducted at 1988, 1995 and 2002 respectively. We apply the1995 and 2002 data.
The surveys are conducted at the rural and urban area separately. For CHIP 1995, the rural data
contains 7998 households and 34736 individuals, while the urban data contains 6931 households
and 21696 individuals. For CHIP 2002, the rural data contains 9200 households and 37762
individuals, while the urban data contains 6835 households and 20548 individuals. Statistical
analysis shows that the sample is well reprehensive.
Both the urban and rural data contain information concerning (1) personal character, such as age,
gender, relation to the house head, work status, education level, etc; (2) Individual income of
different categories, including earnings, benefits, self-employment income, enterprises income,
assets income, transfer income and tax. (3) Saving and assets data at the household level,
including the stock of assets, market value of durable goods；(4) Expenditure data at the household
level, including education expenditure, training expenditure, healthcare expenditure and other
expenditure.
3.2 Aggregate Control
In aggregate level, the National Transfer Account (NTA) is based on the National Account (NA,
Combining Income Approach and Expenditure Approach). National Accounts for year 1995 and
2002 are both from National Accounts Statistics: Main Aggregates and Detailed Tables, 2005
(UNSNA 2005), which is consistent with China’s Statistics Yearbooks. But the numbers of
expenditure account and income account are not equal due to the statistics discrepancy, so we just
assume that the statistics discrepancy in production account is the consumption of capital in
income account, which guarantees the e equivalence of Expenditure and Generation of GDP.
Table 1 National Account of China, 1995
Expenditure on the Gross Domestic Product
33635.0
Compensation of Employees
33660.0
6690.5
Operating Surplus (incl. mixed income)
17040.3
26944.5
Indirect Taxes on products and imports
7777.8
Final Consumption Expenditure
General Government
Household
23877.0
Gross Capital Formation
Gross Fixed Capital Formation
Changes in Inventories
20300.5
Subsidies
Consumption of Capital (Depreciation)
0.0
32.4
3576.5
998.5
Net Export
Exports of Goods and Services
12295.5
Less: Imports of Goods and Services
11297.0
Statistical Discrepancy
Generation of Domestic Production
-32.4
58510.5
58510.5
Table 2 National Transfer Account of China, 1995
Lifecycle Deficit
Consumption
Private Consumption
-7481.5
Lifecycle Reallocation
-7481.5
28019.9
Asset-based Reallocation
-7601.3
21329.4
Public Conumption
6690.5
Labor Income
35501.4
Net Private asset Income
15409.9
Private Savings
-21165.6
Net Public asset Income
Public Savings
968.5
-2814.1
Net Transfers
119.8
Net Private Transfers
95.0
Net Public Transfers
24.8
Note: Calculated by the authors
Table 3 National Account of China, 2002
Expenditure on the Gross Domestic Product
Generation of Domestic Production
62798.5
Final Consumption Expenditure
Compensation of Employees
62524.3
General Government
13916.9
Operating Surplus (incl. mixed income)
24813.6
Household
48881.6
Indirect Taxes on products and imports
17834.2
42304.9
Gross Capital Formation
Gross Fixed Capital Formation
41918.3
Changes in Inventories
0.0
Subsidies
2725.6
Consumption of Capital (Depreciation)
386.6
2794.2
Net Export
Exports of Goods and Services
30243.8
Less: Imports of Goods and
27449.6
Services
Statistical Discrepancy
-2725.6
107897.6
107897.6
Table 4 National Transfer Account of China, 2002
Lifecycle Deficit
Consumption
-16160.8
Lifecycle Reallocation
-16160.8
52294.4
Asset-based Reallocation
-17235.9
Private Consumption
38377.5
Net Private asset Income
24611.1
Public Conumption
13916.9
Private Savings
-34608.9
Labor Income
68455.2
Net Public asset Income
Public Savings
365.6
-7603.7
Net Transfers
1075.1
Net Private Transfers
1072.2
Net Public Transfers
2.9
Note: Calculated by the authors
Some of the detailed information are borrowed from other sources and have to be adjusted to the
SNA. For example, the final household consumption (private consumption) is distributed into
health, education and other consummations by the proportion of counterparts in household
expenditure from household survey, while the government final consumption (public consumption)
is distributed into the same three items by the proportion of government outlays in total
government expenditure from GFS.
The consumption, labor income and asset income in NA is adjusted to NTA by arranging the
indirect taxes on consumption, labor income and asset income back to them. The previous
methodology (method 1) to calculate the taxes sources is based on the proportion of taxes
revenues taxed on consumption, labor income and asset income. We adopt Andy Mason’s
methodology to calculate tax sources in this workshop (June, 2008), which is based either on the
proportion of government revenue from GFS (method 2) or on the proportion of government
outflow from SNA (method 3). Theoretically, all government revenue, the resource of government
outlays is collected by the government from consumption, labor and asset income. The difference
between results of the later two methods is mainly due to GFS has less information about structure
of indirect tax revenue, while we have detailed tax revenue structure to separate the indirect tax in
SNA. For example, the proportion of taxes taxed on labor income is 28.59% by method 2 or
31.10% by method 3 in 2002.
Table 5 Proportion of Indirect Tax Sources
Year: 2002
Taxed on Labor Income
Taxed on Asset Income
Taxed on Consumptions
Method 1
12.70%
7.23%
80.07%
Method 2
28.59%
12.51%
58.90%
Method 3
31.10%
17.83%
51.07%
Note: Calculated by the authors
In NA, the household operation surplus including household mixed income is reported, while in
NTA, private operating surplus only includes the operation surplus of household, enterprises and
NPISH. Note that household operating surplus means imputed rent for self-owned housing. We
assume the proportion of household operating surplus and mixed income in NA is same as the
proportion of imputed rent and self-employee income from the household survey. Noted that there
is no information imputed rent in rural survey while there are imputed market values of housing in
both rural and urban survey, so we assume the rural households has same rent rate as the urban to
calculate imputed rent of rural household. After the adjustment (we call it method 1),
Self-employment Labor Income seems unreasonable comparing to other countries since it has a
much lower proportion of labor income. For example, the proportion is only 1.35% in 2002. So we
add one more step (we call it method 2), i.e. separating the adjusted labor income into
Compensation to Employees and Self-employment Labor Income by the proportion of counterpart
in household survey. For example, it is 69.5% and .30.5% accordingly.
Year: 2002
Labor Income
Compensation to Employees
Self-employment Labor Income
Method 1
Method 2
68455.2
68455.2
67531.3
47550.9
923.9
20904.3
Using the methodology of NTA project, we generate China’s NTA based on the NA, but it seems
China is a special case in the NTA project group. We have lifecycle surplus, but not lifecycle
deficit, which means our Labor income is higher than our consumption in the NTA, both 1995 and
2002. By definitions, consumption expenditure in NTA equals final consumption expenditure in
NT minus indirect taxes taxed on consumption, and labor income in NTA equals compensation to
employee in NA plus calculated self employment labor income and indirect taxes taxed on labor
income. In China’s NA, consumption expenditure is almost equals compensation to employee, so
it’s obviously we will have lifecycle surplus while not deficit. It may due to two reasons. One is
the higher saving rate in China comparing to other countries, so the consumption expenditure is
lower. Another one may be lower operating surplus comparing to compensation to employees, so
we have lower asset income. But this may be a statistical mistake. Maybe the farmer’s income
from agriculture is all calculated as compensation to employee while it includes the mixed income
actually.
3.3 Merge urban and rural data
As the survey is conducted separately by urban and rural, we merge the urban data with the rural
data at the individual level. The steps are:
(1) For both the urban and rural data, we allocate those data which are reported at the household
level to the individual level according to the NTA rules. For the urban, those variables include:
private consumption, self-employed income, inter-household private transfer inflow,
inter-household private transfer outflow.
(2) Append the urban and the rural data, with the rural value multiplied by a factorλ, which
equals

Rural Population/The scale of rural survey
Urban Population/The scale of rural survey
(3) Construct the age-profile under the aggregate control.
3.4 Construct Age Profiles
Consumption
The private consumption on the education, health and other goods and services are reported at the
household level. We allocate the private consumptions on health and education to the individual
by iteration method. The result is similar with that by the regression method. Private other
consumption is allocated by the scale method.
For public education expenditure, we distribute the total education expenditure by the budgetary
expenditure of school at different level. Estimate the student number at different level by age
(using the enrollment at different level by age from the census data at 2000).
The public healthcare expenditure is distributed in proportion to the health care service utilization
rate at each age. In China, government healthcare expenditure is subsidized directly to hospitals,
so we assume those who go to hospitals receive the government subsidy in proportion to their
utilization of the healthcare service. As generally speaking, the more the patient spent, the more
labor force, equipment or medicine he or she consumes.
Some other categories of government expenditures are separated to the urban and rural firstly. The
reason why we do so is that the supply of public goods and service have big gap between the
urban and rural. In other countries, government expenditure on public goods such as
transformation, communication and culture service can be distributed per capita. But in China, it
will lead to obvious bias. The ideal way to solve the problem is using the data on the expenditure
spent to the urban and rural respectively and then distributing them by per capita within the urban
and rural population. However, our government expenditure data is reported at the national and
province level and not separated to urban and rural. In practice, we are in lack of solid data on the
gap between the utilization of public infrastructure——such as highway, though it is obvious that
all highways are located in the urban area and serving mainly the urban population. Subject to the
data constraint, we separate as many as possible categories of public expenditures by urban and
rural. The rule is as following:
Table 6 Rules of allocating the government expenditure to the urban and rural
Public health expenditure
In proportion to private healthcare exp.
Public education expenditure
According to the enrollment rate at different levels
Public expenditure on culture and
science
In proportion to the household consumption on culture,
education and science
The expenditure for supporting
agricultural
among rural populations in proportion to labor income
expenditure for supporting city
construction
distributed among urban populations averagely
Communication
expenditure
In proportion to the household consumption on transport and
communication
and
transport
Price subsidy
In proportion to the total household consumption
Defense and other expenditure
Distributes nationally per capita
Labor Income
The wage and benefits (that means labor income from the formal sector) are reported at the
individual level. We estimate the age-labor income profile following standard methodology. What
should be noted are: (1) the aggregate data omits total labor income, so we calculate the total labor
income directly by multiply per capita labor income from the survey data with the population. (2)
The agriculture income for the rural is considered as self-employed income, and 2/3 of it is taken
as labor income.
Lifecycle Deficit
From the labor income and consumption, we can get the lifecycle deficit by minus labor income
from the consumption.
Asset-based Reallocation
We define asset-based reallocation as 1/3 of mixed income plus other asset income.
Public transfers
In the urban survey public transfers inflow is reported at the individual level, we simply apply it.
In the rural survey public transfers inflow is reported at the household level, we assign the
household public transfer to the household head. In the urban the outflow is reported at the
individual level, while in the rural it is reported at the household level, we assigned them to the
household head.
The following table summarizes the contents of public transfer incomes.
Table 7 Contents of public transfer
Public transfer inflow
Public transfer outflow
1995 urban
Pensions, social relief benefits, insurance
benefit of unemployment, Survey income
Income tax,
premium
1995 rural
Pensions, Survey income, Relief payment,
Subsidies
Tax and fee
2002 urban
Pensions, social relief benefits, insurance
benefit of unemployment, Fee for dismiss,
Draw from the public housing funds,
Survey income
Income tax,
premium
2002 rural
Pensions, Survey income, Relief payment,
(Government’s) Subsidies for the aged
Tax, social insurance premium,
Expenditure on medical insurance,
Expenditure on pension
social
insurance
social
insurance
Private transfers: Inter-HH
In the urban, private transfers inflow is reported at the individual level, we assign them to the
household head, and the private transfers outflow is reported at the household level. In the rural
survey both private transfers inflow and outflow is reported at the household level. All of them are
allocated to the household head.
The following table summarizes the contents of private transfer incomes.
Table 8 Contents of public transfer
1995 urban
Private transfer inflow
Private transfer outflow
Income form compensation, Alimony (for
aged), Denotation （ including present, Fee
Alimony outlay, Education cost
for children, gifts
from the relative and friend who regularly eat
in
1995 rural
Presenter income from relatives and friends,
Alimony, Child support payment
Gifts expenditure,
expenditure
Alimony
2002 urban
Income form compensation, Insurance benefit
(minus social insurance benefit), Alimony (for
aged), Denotation （ including present, Fee
from the relative and friend who regularly eat
in, Other transfer income
Denotation, Buying lottery,
Alimony outlay, Education cost
for children living in other city,
Expenditure on insurance as
non-deposit, gifts
2002 rural
Income brought back or remitted by
household members who lived and worked
outside of the household, Presenter income
from relatives and friends, Alimony, Child
support payment, Present in wedding and
mourning,
Gifts (including cash and goods)
to relatives, Gifts (including cash
and goods) to friends or
neighbors, Gifts (including cash
and goods) to village/township
cadres, Alimony
Intra-HH transfer
We derive the Intra Household transfer profiles from the individual consumptions and disposable
income. The disposable income is defined as labor income + public cash transfer inflow + private
inter-HH transfer – public transfer outflow – private transfer outflow.
Assets-based Reallocations
In constructing the NTA account, we take assets-based reallocations as the residual.
4. Results and Implications
4.1 Consumption: overview
The public and private consumption profiles of 2002 are shown in Figure 9. Figure 10-11 shows
the public and private consumption in terms of the urban and rural. It is more interesting to
compare the consumption profiles between 1995 and 2002, which are shown in Figure 12.
Figure 9
Public Consumption,China,pe r capita,2002
2000
3000
1500
Yuan
4000
2000
1000
1000
500
0
0
0
9
18
27 36
45
54 63
72
81 90+
0 7 14 21 28 35 42 49 56 63 70 77 84
Age
Age
Private Consumption
Public consumption
Private Consumption,Education
Public Consumption,Education
Private Consumption,He alth
Public Consumption,He alth
Private Consumption, Othe r
Public Consumption,Othe r
Figure 10 Consumption, Urban, per capita, 2002
14000
12000
10000
RMB yuan
Yuan
Private Consumption,China,pe r capita,2002
Health
8000
Eduaction
6000
Other
Total
4000
2000
0
0
7
14 21 28 35 42 49 56 63 70 77 84
Age
Figure 11 Consumption, Rural, per capita, 2002
4500
4000
3500
3000
Health
2500
Eduaction
2000
Other
Total
1500
1000
500
0
0
7
14 21 28 35 42 49 56 63 70 77 84
We can see great gap between the urban and rural area in the level of consumption. The shape of
education consumption and the other consumption are almost the same, with the education
consumption peak at a higher age in the urban area as more urban residents go to the universities.
Figure 12 and 13 show the age-profile of public expenditures in terms of the urban and rural. The
shape of China’s age-public consumption profile is similar to most other courtiers. What is special
is that (1) Great gap between the urban and rural. (2) The public expenditure on the education and
the healthcare accounts for lower proportion to the total public expenditure in the rural than the
urban, which is due to low education enrollment and low utilization rate to the healthcare service
of the rural population. In China, the education expenditure and healthcare expenditure is directly
subsided to the institutions rather than the individual, so those who consume the service more will
get more government subsidy.
Figure 12 Public Consumption, Urban, 2002, per capita
7000
6000
5000
Total
4000
Health
Education
3000
Other
2000
1000
0
0
7
14 21
28 35
42 49
56 63
70 77
84
Figure 13 Public Consumption, Rural, 2002, per capita
1600
1400
1200
1000
Total
Health
800
Education
600
Other
400
200
84
90+
78
72
66
60
54
48
42
36
30
24
18
12
6
0
0
Graph 14A Consumption comparison, 1995 and 2002
0.060
0.050
0.040
Public Public
Education 1995y
Public Public
Education 2002y
0.030
0.020
0.010
90
81
72
63
54
45
36
27
18
9
0
0.000
Graph 14B Consumption comparison, 1995 and 2002
0.120
0.100
Private
Education 1995y
Private
Education 2002y
0.080
0.060
0.040
0.020
88
72
80
56
64
40
48
24
32
8
16
0
0.000
Graph 14C Consumption comparison, 1995 and 2002
0.010
0.008
Public Health
1995y
Public Health
2002y
0.006
0.004
0.002
88
80
72
64
56
48
40
32
24
16
8
0
0.000
Graph 14D Consumption comparison, 1995 and 2002
0.050
0.040
Private Health
1995y
Private Health
2002y
0.030
0.020
0.010
88
80
72
64
56
48
40
32
24
16
8
0
0.000
Note: all age profiles are normalized by the average labor income for the age 30-49 as the
denominator.
We can conclude from the graphs:
(1) The relative scale of the public and private education keeps almost stable from 1995 to 2002,
while the peaks move. The peak of the public education moves to the younger age while the
private education moves to the older age. This result is perfectly consistent with China’s education
policy adjustment. Since 1990s, Chinese government subsidized more resources to the primary
education rather than advanced education. And public universities began to charge tuition from the
middle 1990s.
(2) The public health expenditure reduced while the private health expenditure increased
simultaneously. This reflects that during 1995 to 2002 the government healthcare expenditure
decreased and the out of pocket expenditure increased.
The shape difference of the private healthcare consumption for the old age maybe attributed to the
method difference. In 2002 it is reported by individual while in 1995 the private health
consumption is reported at the household level and allocated to the individuals.
However, it is clearly from the comparison that China began to allocate its public resources to the
right public sector in the education area, but not in the health area. It is consistent with the
government’s policies. In later 1990s China put forward the National Guideline of the Reform and
Development of Education, but the similar policy in the healthcare area comes out at 2009.
4.2 Consumption: Health
It is necessary to do some analysis on the shape of China’s health consumption profiles.
Unlike the case of education, the shape and the level of the health consumption are quite different
between the rural and urban area, as well as between the migrating population and the urban,
which is shown in figure 15. The same phenomena also happen in 1995, as shown in figure 16.
Figure15 Private Consumption, health, per capita, 2002
1200
RMB yuan
1000
800
600
400
200
0
0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
Age
Urban
Rural
Migrate
Figure 16 Private Healthcare Expenditure, per capita, 1995
Private Healthcare expenditure,per capita
400
350
300
250
200
150
100
50
0
1
5
9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89
urban self report
rural
National
We conclude from that Big gap exists between the urban and rural. The per capita private
healthcare expenditure is 125.4 Yuan in the urban and 51.5 Yuan in the rural. (2) The shape of the
curve for the rural area is somewhat “strange” compared with that of the urban and most other
countries, in that it is downward after about 50 years old, while in normal cases, the curve is
highly upward, and the older, the sharper.
The gap between the urban and rural may be interpreted as low healthcare insurance coverage rate
in the rural area. At 2003, 44.8% of urban citizens and 79% of rural population are kept out of
healthcare insurance. Of all the healthcare expenditure, individual out-of-pocket expenditure
account for as much as 60%.
Table 10 Healthcare Insurance Coverage
Total
Basic insurance
Public insurance
Labor insurance
Cooperative Insurance
Other social insurance
Private Insurance
Out-of-pocket
Urban
Rural
2003
1998
2003
1998
2003
1998
8.9
1.2
1.3
8.8
1.4
7.6
70.3
4.9
6.2
5.6
5
1.9
76.4
30.4
4
4.6
6.6
2.2
5.6
44.8
16
22.9
2.7
10.9
3.3
44.1
1.5
0.2
0.1
9.5
1.2
8.3
79
1.2
0.5
6.6
3
1.4
87.3
Source: 3rd National Healthcare Service Survey, MOH, 2003
The left question is why the elderly consume less, both in 1995 and 2002. It may be interpreted as:
subject to the budget constrain, the household choose to allocate more resource to the mid-ages
rather than the elderly when they get sick. To test the hypothesis, we calculate the income
elasticity of the “healthcare consumption of the young (defined as the sum of health consumption
for household members of 25-50 years old for any given household) and the “healthcare
consumption of the old (defined as the sum of health consumption for household members of 50
years and above accordingly). We conclude that the income elasticity of the health consumption of
the young is 0.35, while the elasticity of the health consumption of the elderly is 0.25. It may an
evidence to support the hypothesis that the household will allocate more resources to the mid-ages.
The absolute value of the income elasticity is less than one, it may be interpreted that health care
in the rural is necessity.
Another interesting phenomenon is that in the urban area, the healthcare insurance is not efficient,
as is shown in Figure 17, the reason why the old people consume so much healthcare expenditure
is worth exploring. One reason why the public healthcare insurance is not efficient is that it lacks
enough cost-control mechanisms.
Figure17 the structure of the healthcare consumption profiles
6000
RMB yuan
5000
4000
3000
2000
1000
0
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
Age
Private,urban
Public,urban
Rural
4.3 Labor Income
Figure 18 and 19 show the shape of per capita labor income of 2002.
Figure18 Labor Income, Urban, per capita, 2002
18000
16000
RMB yuan
14000
12000
10000
8000
6000
4000
2000
0
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91
Age
Wage
Self-employed income
Figure19 Labor Income, Rural, per capita, 2002
Labor income,rural,per capita
4000
3500
3000
2500
Wage income
self-employed income
Total labor income
2000
1500
1000
500
0
0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88
(1) The average level of the labor income in the rural is more than 2 times that of the rural (1605.3
Yuan). Labor income is the major component of total household income, so that the gap of labor
income contributes much to the income diversity between urban and rural.
(2) The age-labor income curve of the rural is much “fatter” than the urban, that is, the labor
income is distributed more averagely across the middle and old ages. The average labor income of
the rural population at 60 years old is 47% of the max value (which is at 43 years old), while the
labor income of the urban population at 60 is only 33% of the max value (at 43 years old). The
reason is that the self-employed income account for the majority of labor income. As we have
mentioned above, more and more young peasants shift from informal sector to the formal sector
(partly by migrating from the rural area to the urban area). But for agriculture work, the work age
can last as old as 70 years old.
After comparing the shapes of these profiles between urban and rural, we conclude that
(1) The average level of the labor income in the rural (3457.6 Yuan) is 2.15 times that of the rural
(1605.3 Yuan). Labor income is the major component of total household income, so that the gap of
labor income contributes much to the income diversity between urban and rural.
(2) The age-labor income curve of the rural is much “fatter” than the urban, that is, the labor
income is distributed more averagely across the middle and old ages. The average labor income of
the rural population at 60 years old is 47% of the max value (which is at 43 years old), while the
labor income of the urban population at 60 is only 33% of the max value (at 43 years old). The
reason is that the self-employed income account for the majority of labor income. As we have
mentioned above, more and more young peasants shift from informal sector to the formal sector
(partly by migrating from the rural area to the urban area). But for agriculture work, the work age
can last as old as 70 years old.
(3) Another interesting phenomenon is the shape of the age-wage income curve of the rural. The
peak of the curve is located at the age of 23, and decreases sharply between 23 to 28 years old,
then keeps flat until 45 years old, and then decreases smoothly.
Figure20 Wage income, rural, per capita, 1995
Wage income,rural,per capita
900
800
Wage income
700
600
500
400
300
200
100
0
0
4
8
12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88
I should make clear the variable I use before discussion. The CHIP survey reports the individual’s
income from pensions, wage, bonus, income from the part-time job, in-kind transfer from the
employer. All of them are from formal sector. In order to explain the shape of the profile, we
investigate the employment status for the rural population by ages. We can see clearly that the
high employment in the formal sector contribute to the high wage income for the age groups
18-25.
Figure 21 shows the importance of migration in improving the income of the rural population. The
working time out of his/her hometown is heavily consistent with the shape of labor income and
formal sector employment.
Figure 21 Employment status of the rural population, 1995
Employment status,rural
100%
90%
farmer
80%
formal sector
Percent
70%
60%
50%
40%
30%
20%
10%
0%
0 4
8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88
Notes: The CHIP data reports 9 categories of employment status, which is (1) farmer, (2) private
enterprises; (3) self-employed household；(4) Village enterprises; (5) other collective enterprises;
(6) States-Owned Enterprises and public service unit; (7) Sino-foreign joint ventures; (8)
exclusively foreign-owned enterprises (9) unemployment. We take (2) (4) (5) (6) (7) and (8) as
formal sector, (1) and (3) as informal sector.
Figure 22 Average Working Time out of Hometown, 1995
Working time out of hometown (Month)
4
3.5
3
2.5
2
1.5
1
0.5
0
0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88
Ronald Lee (2004) discusses the shape of labor income, the shapes fall into one of three types: (1)
Brazil type, where the young account for a substantial portion of aggregate earnings, peaking in
the early 30s and dropping sharply after that. (2) France type, where the young and the elderly
accounts for a small share of aggregate earnings, with peaking in the early or mid 40s. (3) Japan
type, where people aged 60 and above account foe substantial portion of aggregate earnings. The
share of young workers is much less than any other countries.
Just as figure 2 in Lee (2004), we calculate the share of earnings for ages 20 and under (20- ) and
ages 65 and older (65+). See Figure 23.
Figure 23 Share of aggregate earrings from youth (20- ) and elderly (65+), 1995
Share of aggregate earnings for youth (20 and under)
and elderly (65 and over)
China,national(1995)
age 65+
China,rural(1995)
age 20-
China,urban(1995)
Japan(1999)
Australia(2000)
US(2001)
Thailand(1990)
Taiwan(1998)
Indonesia(1996)
France(1995)
Brazil(1996)
0
2
4
6
8
10
We include that the China age-labor income profile in the urban follows the mixture of type I and
type II, while the rural profile follows type II. However, though the age-profile of China’s rural
income profile is similar to that of the U.S, whether they have the same mechanism is an
interesting topic to be discussed.
Finally, we compare the aggregate age-labor income profile with that of other countries. Unlike
most of other countries, we have a sharp cave at the age 35 years old. It is due to the age
distribution of the population. The 35 years old in 1995 are born in 1960, when the birthrate
significantly decreased due to the large famine.
Figure 24 Share of aggregate labor income of selected countries by age, 1995
Labor income,aggregate
1200
1000
800
Rural
600
Urban
National
400
200
0
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
4.4 Public transfer
We have mentioned that the public (cash) transfer system in China is mainly composed of the
public pension system. The scale of the public pension system has grown rapidly from 1995 to
2002, so that graph 10 shows the higher peak of 2002 than that of 1995. In China the retirement
and pension system for the government agencies and public institutions was originally funded
directly by government finance. Ever since 1990s, some localities in China began to probe the
procedures of reforming the retirement system in such institutions to raise the retirement pension
funds through the social pool program. By the end of 2003, some 11.99 million employees and
2.58 million retirees had participated in such pilot projects.
And, the location of the peak is older in 2002 than that in 1995, which reveals the trend of
population aging.
Figure 25 Comparisons of Public Transfer
0.300
0.200
0.100
-0.200
64
72
80
88
-0.100
8
16
24
32
40
48
56
0
0.000
Public
transfer,net
1995y
Public
transfer,net
2002y
0.400
0.300
public,inflows
1995y
public,inflows
2002y
0.200
0.100
84
77
70
63
56
49
42
35
28
21
14
7
0
0.000
4.5 Private transfer: Inter-HH
The shapes of private inter-household inflows changed a lot from 1995 to 2002, shifting to the old
age. It may be explained by the fact that more aged people choose to live separately with their
children or receive more cash transfers from their children.
Figure 26 Comparisons of Private Transfer: Inter Household
0.120
0.100
inter-HH
inflows 1995y
inter-HH
inflows 2002y
0.080
0.060
0.040
0.020
0.000
-0.010
-0.020
-0.030
-0.040
-0.050
-0.060
-0.070
-0.080
90
81
72
63
45
54
36
27
18
9
0
9
18
27
36
45
54
63
72
81
90
0
0.000
inter-HH
outflows 1995y
inter-HH
outflows 2002y
4.6 Private transfer: Intra-HH
Figure 27 shows the comparisons of the age profile of the Intra household transfer. We conclude
that the intra-household transfer to the children’s education and to the health of the aged increased.
These are consistent with the rapid growing expenditure of the education and healthcare. The price
of the increase in education and health inflow is that the inflow of other consumption decreased.
The overall effect is that more recourse is allocated to the children rather than to the aged.
Figure 27 Comparisons of Private Transfer: Intra Household
0.200
0.150
0.100
0.050
90
81
72
63
54
45
36
27
-0.050
18
9
0
0.000
Education
Inflow 1995
Education
Inflow 2002
Education
Outflow 1995
Education
Outflow 2002
-0.100
0.050
0.040
0.030
0.020
90
81
72
63
54
45
36
27
18
9
0.000
-0.010
0
0.010
-0.020
0.600
0.400
0.200
-0.400
90
81
72
63
54
45
36
27
18
-0.200
9
0
0.000
Health
1995
Health
2002
Health
1995
Health
2002
Inflow
Other
1995
Other
2002
Other
1995
Other
2002
Inflow
Inflow
Outflow
Outflow
Inflow
Outflow
Outflow
0.500
0.400
0.300
0.200
Intra-HH Inflow 1995
0.100
Intra-HH Inflow 2002
0.000
-0.100 0
9
18
27
36
45
54
63
72
81 90+
Intra-HH Outflow 1995
Intra-HH Outflow 2002
-0.200
-0.300
-0.400
-0.500
0.60
0.50
0.40
0.30
0.20
Intra-HH,Net 1995
0.10
Intra-HH,Net 2002
0.00
(0.10) 0
7
14 21 28 35 42 49 56 63 70 77 84
(0.20)
(0.30)
(0.40)
4.7 Component of Lifecycle Deficit
From the profiles of the lifecycle deficits, we draw the graph of the component of the LCD, and
summarize in table 11 the cutting ages of the lifecycle deficit.
Figure 28 Structure of Lifecycle Deficit: 1995 and 2002
S tructure of LCD,China,per capita,1995
3,000
2,000
Yuan
1,000
LCD
Public Transfer
0
-1,000
0
Inter-HH transfer
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+
Intra-HH transfer
Asset reallocation
-2,000
-3,000
-4,000
Age
S tructure of LCD,China,per capita,2002
6,000
4,000
Yuan
2,000
LCD
Public Transfer
0
-2,000
0
4
Inter-HH transfer
8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88
Intra-HH transfer
-4,000
Asset reallocation
-6,000
-8,000
Age
Table 11 the Structure of the Lifecycle Deficit
(Assets Reallocation as residual)
1995
2002
Cutting Ages
Duration
Cutting Ages
Duration
Lifecycle Deficit
20
58
38
21
59
38
Public Transfer
22
58
36
17
59
42
Private Transfer
25
62
37
26
57
31
27
50
23
26
67
41
- Inter Household
- Intra Household
25
63
38
Residual (Asset reallocation)
13
55
42
16
68
52
The duration of lifecycle deficit keeps at 38 years in 1995 and 2002, with one year older in 2002
(from 21 to 59) than 1995(from 20 to 58).
The beginning age of public transfer has decreased from 22 in 1995 to 17 years old in 2002. This
shows the decrease of the public expenditure to the advanced education and the expanding of the
public pensions.
From 1995 to 2002, the ending age of the public transfer has decreased from 62 to 57, which
shows the aged population began to receive net private transfer at a younger age. However, the
intra-HH transfer ends at 63 and 67 years old, much older than the inter-HH transfer. This is
consistent with our hypothesis above. Those aged people who lived separately with their
children will receive recourses from their children through inter-HH transfer, while those who
lived together with their children (and their grand-children) will transfer net resources to their
children and grand-children, until very old age (67 years old). Maybe it is the result of their choice
of living arrangement: people would be like to live together with their old parents if they can
receive resources from their parents. Refer to the Appendix for more information about the living
arrangement.
4.8 Old-age Reallocation System
According to the NTA table, we derive the old-age reallocation system. The triangle graph is
shown at graph. In order to compare the supporting systems of aged people at different ages, we
show the old-age supporting system for the aged people above 60, 65 and 70 years old separately.
China is located next to the southern edge of the triangle. In 1995, the asset reallocation, public
transfer and private transfer account for 11.7, 37.1 and 51.2 separately. And in 2002, the
proportions are 0.7, 51.7 and 47.6. The increase of public transfer and decrease of private transfer
have been explained above.
Figure 29 Old-age Reallocation System, China 1995 and 2002.
100%
80%
60%
Private Transfer
40%
Public Transfer
20%
Asset Reallocation
0%
-20%
>60
>65
>70
>60
>65
>70
1995
1995
1995
2002
2002
2002
Asset
Reallocation
Public Transfer
Private Transfer
>60
>65
>70
>60
>65
>70
19.9
11.7
0.7
-4.3
0.7
2.7
40.2
39.9
37.1
51.2
32.4
66.9
56.0
44.3
51.7
47.6
45.8
51.5
5. Conclusion
China is the largest developing country as well as the largest transition country. During China’s
transition, the transition of demography as well as the transition of economic and social
development are both important. That is the link between the NTA framework and China’s
transition.
The phrase Great Transformation is borrowed from Karl Polanyi (1944), who argued that the
modern market economy and the modern nation-state should be understood not as discrete
elements, but as the single human invention he calls the Market Society, and that the modern state
went hand in hand with the development of modern market economies and that these two changes
were inexorably linked in history. His reasoning for this was that the powerful modern state was
needed to push changes in social structure that allowed for a competitive capitalist economy, and
that a capitalist economy required a strong state to mitigate its harsher effects.
China began its market-oriented economic reform ever since 1978(Justin, 1994), and have seen
great economic miracle as far as present. However, during the recent years, some argues that
during China’s 30 years of economic reform, the role of market mechanism had been over
emphasized (Wang, 2003; World Bank, 2004; Wang, 2008). They argued that during the era,
accompanied by rapid economic growth, the public sector have been collapsed, most public
service units have been privatized, the GINI index have been greatly improved, and more and
more citizens are not satisfied with the public education, healthcare and social insurance systems.
Realizing that it is not sustainable to continue the trend, the Chinese Communist Party and the
Chinese government put forward the thought of “Rational Development” or translated as “the
Scientific View of Development”, which means the development model which is “the
comprehensive, harmonious, balanced and sustainable development”. They tried to use this
concept to show their aim to balance the developments between the urban and rural, economic and
social, domestic and international, production and the environment and balance the developments
across different areas, which is called “the Five Balance.” (Hu Jintao, 2007). Under the guidance
of the Scientific View of Development, China began to reconstruct the public service and social
security system. After the SARS epidemic in 2003, the trend had been accelerated.
In this paper, we use the result of NTA to show how China’s great transformation influences the
national transfer account and life deficit. The shortage of the research is the data sources are
limited at 1995 and 2002, when the trend of China’s great transformation has not been explicit
enough. Should we got the recent data, it is more likely to get more obvious trend of the transition.
Reference
Hu Angang (2003): China’s economic growth and poverty reduction (1978-2002), Internet
resources. http://ics.nccu.edu.tw/ced/displaybook.php?id=245
Hu Jintao (2007): Report at the 17th National Congress of the Communist Party of China
Justin Yifu Lin (1994), China’s Miracle: Development Strategy, Comparative Advantage and
Economic Reform
Karl Polanyi (1944), the Great Transformation: The Political and Economic Origins of Our Time;
The Information Office of China's State Council (2004): The White Paper on "China's Social
Security and Its Policy".
The Information Office of China's State Council (2001): The White Paper on "Rural China's
Poverty Reduction
Ronald Lee (2004): Individual Earnings and Consumption Profiles: What Do We Zeng, Yi and
Linda George (2000). Family Dynamics of 63 Million (in 1990) to More than 330 Million (in
2050) Elders in China, Demographic Research, Vol.2 (5).
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