China Passes New PRC Social Insurance Law

On October 28th, 2010, the Standing Committee of the National People's Congress has promulgated the "PRC Social Insurance Law". The Law will come into effect on July 1, 2011. All major aspects of the social insurance system in China have now been regulated in one comprehensive law issued on the national level. The legislator's aim is to eliminate local disparities by establishing a uniform nationwide system and paying out of related benefits. For the first time in China, mandatory full coverage will generally be imposed for all migrant workers and foreigners.

The Law is of immediate and of high relevance to all enterprises in China, including foreign invested enterprises. Depending on a company's employee structure, the Law may lead to a substantial increase of the social insurance cost burden imposed on both enterprise and employees. Companies may urgently need to review their budgets currently under preparation.

The new Social Insurance Law specifies a common right for all citizens to access and enjoy five forms of insurance: basic endowment insurance, basic medical insurance, employment injury insurance, unemployment insurance and maternity insurance. It also allows employees to transfer their basic endowment insurance accounts from one residence to another and promises a new endowment insurance system for rural residents. The law overcomes many of the obstacles under the old regulations, which restricted movement of the country’s increasing migrant population. It says that a new medical payment system should be established to allow medical insurance in one place to be repaid in another. Citizens should also be allowed to pay pension premiums in one place and withdraw money from another.

In order to prevent the misappropriation of social insurance funds, the law says that the funds’ income and expenses, management processes and investment should be made public. Social Security funds cannot be used to cover government budget deficits, build or renovate government offices or pay government agencies’ day-to-day expenditures, according to the law’s full text released on Thursday.

As of 2008, about 219 million Chinese people have been covered by the pension system and about 317 million have basic medical insurance. An additional 124 million have unemployment insurance, 138 million have work injury insurance and 91 million have childbirth insurance, according to government statistics.

(Source: China Business News)

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