Guo Shuqing, a former chairman of the China Banking and Insurance Regulatory Commission, had earlier warned that the country’s pension system could run short of funds in the next 20 years, citing multiple projections.

Guo called for new tax sources and greater transfers of state-owned capital to social security funds to strengthen the long-term financing of the pension system.

“China has substantial assets and resources to match its large stock of debt. Making these assets and resources more liquid could provide strong support for addressing the funding pressure,” he wrote in an article for Social Security Review that was reposted on the WeChat social media account of Yicai, a financial news outlet, on Wednesday.

China has separate basic pension schemes for employees and urban and rural residents not covered by the employee scheme. The latter relies heavily on government subsidies and provides lower benefits.

They averaged just 260 yuan (US$38.96) a month, Guo said, far below what was needed to meet basic living costs, while adding that a substantial increase could create an additional funding gap that would place further strain on a pension scheme that multiple agencies had projected would face a funding shortfall.

The government should rethink its traditional approach to fiscal spending and break away from rigid spending patterns

Guo’s proposed solution was increasing fiscal support by reallocating existing government spending.

A small portion of proceeds from ultra-long-term special treasury bonds and local government special-purpose bonds could be used to subsidise the resident pension scheme, he said. Both types of bonds currently faced a shortage of eligible projects, he added, while funds for consumer goods trade-in programmes and other general industrial development initiatives could also be redirected.

“The government should rethink its traditional approach to fiscal spending and break away from rigid spending patterns,” he wrote.

Guo also urged the government to develop new tax revenue sources to generate additional fiscal income and support the pension system, including by addressing cases in which business owners paid themselves little or no salary and consequently paid little or no personal income tax.

He proposed moving ahead with inheritance and gift tax legislation and improving the consumption tax and other levies, adding that as the additional taxes would affect a relatively small group of high-income earners, some or all of the revenue could be earmarked for pension subsidies.

Guo’s proposals come as China faces a rapidly ageing population and a shrinking workforce. People aged 60 and above accounted for 23 per cent of the population at the end of last year, while the total population fell by 3.39 million from a year earlier, according to the National Bureau of Statistics.

The demographic shift has fuelled debate over how to close a potential pension funding gap. In a commentary late last month, the Communist Party mouthpiece People’s Daily said advances in “new quality productive forces” could raise productivity and the value created by each worker, generating more wealth to support an ageing population.

In his article, Guo also urged the transfer of more state-owned capital to social security funds.

China’s state-owned enterprises held around 140 trillion yuan in net assets, but relatively low returns limited the dividends available for distribution, he said, adding that greater transfers could strengthen pension financing while diversifying ownership and improving corporate governance at state-owned enterprises.

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