Rust belt province got old before it got rich, as much of China will

Wang Fengqin suffered from hunger in her youth, when Mao Zedong was running China, so it brings her joy to cook a nice dinner whenever her sons visit her in the rapidly depopulating northeastern village of Wudaogang.

"Come home to eat, mum can still afford to make you this meal," the 70-year-old retired farmer said, recalling how their phone calls usually start, as she took a break from chopping cabbage in her wood-fired kitchen.

On a 2,000 yuan ($290) monthly pension, she can hardly afford anything else. Going to the hospital to check her growing abdominal pain could cost her 1,000 yuan, she said.

A problem for Chinese leaders as they plan to reform the country's fragmented, poorly funded pension system, is that the provincial government in Heilongjiang needs cash transfers from richer regions to pay even Wang's modest benefit.

As China's 1.4 billion population declines and ages, in part because of a policy that limited couples to one child from 1980 to 2015, pressure on pension budgets is soaring.

Already, there are cracks in the system.

Eleven of China's 31 provincial-level jurisdictions are running pension budget deficits, with Heilongjiang's the biggest, at -2.4% of its GDP, finance ministry data show. The state-run Chinese Academy of Sciences sees the pension system running out of money by 2035.

"If the pension system does not change, this is unsustainable," said Xiujian Peng, senior research fellow in the Centre of Policy Studies at Victoria University in Australia.

Peng said richer provinces currently fill the gap, "but they cannot do this forever, so this is a problem for the whole country."

The Heilongjiang provincial government, China's National Development and Reform Commission - the top state planner - and the Ministry of Human Resources and Social Security did not respond to requests for comment.

Heilongjiang, which shares a 3,000-kilometre border with Russia, offers a cautionary tale for how China's demographic problems might manifest elsewhere in the country.

Reuters interviewed a dozen, mostly elderly, people in the province, as well as demographers, academics and economists, who described a region struggling to support its growing ranks of seniors, many of whom can barely afford the basics.

Heilongjiang's heyday was during the Mao era, when state-owned industrial conglomerates exploited its rich resources of coal, minerals and timber.

As the economy opened up to private enterprise after Mao's death in 1976, and as those resources dwindled, China's industrial epicentre moved south, and with it, the money and the people.

Income per capita in Heilongjiang, now known as one of China's three "rust belt" provinces, was 50,900 yuan in 2022, below the national figure of 85,700 yuan. A quarter of its people were aged 60 and over, according to official data published last year, compared with 20% nationally.

The overall population shrank 17% in the decade through 2021 to just over 30 million, while the workforce contracted by about one-third, official data show.

Wang said her hilly village is down to about 70 households, from 400 in 1976 when she moved in.

The province has the lowest birth rate in China, with just over 100,000 births in 2021 and 460,000 deaths. The pension income per capita is 38,792 yuan per year, among the lowest in the country, and about half of Beijing or Shanghai levels.

Like elsewhere in China, rural pensions can be as low as 100 yuan a month.

"What can I spend that on?" asks Wang Zhanling, 71, in Quansheng village, some 100 kilometres (62 miles) south of Wudaogang. He still farms and takes odd jobs, such as fixing pot-holes, to earn more.

"My body can't take it, but I still need to make ends meet," he said, bundling mounds of corn stalks he uses to heat his house during winter, when temperatures drop well below freezing.

FRAGMENTED SYSTEM

China's pension system is largely administered at a provincial level, predominantly on a pay-as-you-go basis, meaning contributions from the active workforce pay the pensions of those who retired.

China created a special fund in 2018 to shift pension funds from richer provinces like Guangdong to those facing deficits, but economists see that only as a stop-gap.

Many experts, including Macquarie's chief China economist Larry Hu, suggest implementing a unified national pension system, backstopped by the more resourceful central government rather than cash-strapped local administrations.

That may also require changing China's home registration system, known as hukou, Hu says.

Hukou dates from the famines many of China's pensioners endured as Mao experimented with collective farms, starting in the 1950s. Rations were tied to where people were registered, keeping starving peasants from flooding into better-fed cities.

Nowadays, hundreds of millions of workers in China sell their labour in places other than their home towns. But they can only access social services in their place of origin, where anything from education to medical care is of lower standards than in major cities, so they are reluctant to pay social contributions.

Many employers do not pay contributions for such workers either, as they are on temporary, often informal contracts.

A unified pension system would contribute towards formalising employment, allow money to flow freely outside the confines of provincial borders, and encourage participation, economists say.

"Those without a city hukou tend to return to the countryside in their late 40s-early 50s. A reform of the hukou system could significantly extend their working lives," Hu said.

RETIRING EARLY

Another pressing issue is China's retirement age.

At 60 for men, 55 for white-collar women and 50 for women who work in factories, it is among the lowest in the world.

Yet China's life expectancy has risen from around 44 years in 1960 to 78 years as of 2021, higher than in the United States, and is projected to exceed 80 years by 2050.

China's National Health Commission expects the cohort of people aged 60 and over to rise from 280 million to more than 400 million by 2035 - equal to the entire current populations of Britain and the United States combined.

At present, each retiree is supported by the contributions of five workers. The ratio is half what it was a decade ago and is trending towards 4-to-1 in 2030 and 2-to-1 in 2050.

"The payment pressure on pension funds will further increase in the future as China's growing elderly population is living longer and getting old before getting rich," said Jiang Quanbao, professor at the Institute for Population and Development Studies at Xi'an Jiaotong University.

Some reforms may be announced as soon as next month, when China holds its annual legislative session, but what is in the works remains unclear.

Policymakers flagged in 2020 and 2021, including in Premier Li Keqiang's official work report, that they will lift the retirement age, but have yet to act. Last year, China launched its private pension sector after four years of pilots.

Any reforms are likely to be unpopular, as recent cuts to medical benefits in some provinces have shown, with hundreds of elderly taking to the streets this month in the cities of Wuhan and Dalian to protest the moves.

Stuart Gietel-Basten, professor of social science and public policy at the Hong Kong University of Science and Technology, who focuses on the causes and consequences of low fertility, said raising the retirement age may provoke more protests.

"Pension reform is never popular," Gietel-Basten said, because it involves "either paying more money in, getting less out, working longer or more commonly, all three, and nobody really likes to do that."

STALIN PARK WORKOUT

Harbin, the provincial capital, accounts for a third of Heilongjiang's economy and population. Tourists, unshackled from three years of COVID-19 restrictions, are returning to the former orthodox church Saint Sophia, now a museum, and tranquil shopping boulevards that slice through a cluster of commercial towers.

Heavy trucks leave dark trails on its snowed ring-road, servicing industrial machinery plants and agricultural warehouses in and around the city.

While still humming along, Harbin's economy has been lagging China's overall growth rates in recent years.

On a cold, mid-February morning, its central Stalin Park spoke more of Harbin's past, than its future.

In the park's fitness area, dozens of men over 60 counted push-ups, or lifted weights, cheering each other on. The children's playground area nearby was mostly empty.

Retired entertainer Ma Weiguo, 69, had a theory: "The price of raising a kid is too high."

Ma and his fellow outdoor gymgoers were better off financially than their rural peers, but they also spend more in the city, so had similar complaints.

"My pension is enough to eat and drink but it is not enough to see the doctor," said retired teacher Zhang Zhidong, 78, who receives more than 3,000 yuan a month.

Incomes need to rise for fertility rates to recover, demographers say. Like pensions, wages haven't kept up with China's exports-generated wealth.

Wang, the Wudaogang farmer, has two sons, both living 15 kilometres away in the city of Hegang, and earning around 3,000 yuan a month in wages. The elder, 46, is a truck driver. The younger, 44, a firefighter.

They each have a child of their own. Wang says they "never dared" to have more.

"How can you raise them? It is such a huge expense from the time they start school," she said.