VZCZCXRO3447
RR RUEHCN RUEHGH
DE RUEHGH #0071/01 0311138
ZNR UUUUU ZZH
R 311138Z JAN 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 5502
INFO RUEHBJ/AMEMBASSY BEIJING 0799
RUEHGZ/AMCONSUL GUANGZHOU 0419
RUEHCN/AMCONSUL CHENGDU 0434
RUEHSH/AMCONSUL SHENYANG 0442
RUEHHK/AMCONSUL HONG KONG 0537
RUEHIN/AIT TAIPEI 0368
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 5854

UNCLAS SECTION 01 OF 04 SHANGHAI 000071 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
HHS FOR ELVANDER/BHAT 
DOL FOR INTL LABOR AFFAIRS- ZHAO LI 
 
E.O. 12958: N/A 
TAGS: ELAB PGOV SOCI CH
SUBJECT: SHANGHAI POPULATION TRENDS: RETIREE NEEDS CONTINUE TO BURDEN 
GOVERNMENT 
 
REF: A. A) 05 SHANGHAI 1129 
 
     ¶B. B) 05 SHANGHAI 1051 
     ¶C. C) 05 SHANGHAI 1076 
     ¶D. D) 06 BEIJING 18534 
 
(SBU) Sensitive but Unclassified- Please protect accordingly. 
Not for dissemination outside of USG channels. 
 
¶1. (SBU) Summary:  During a series of meetings with Congenoffs 
over the last three months, Shanghai population experts agreed 
that Shanghai continued to be a rapidly-aging city that faced 
problems of pension obligations and services to the elderly. 
They also noted that Shanghai had reversed its decade-long trend 
of negative population growth in 2005 and one academic believed 
this was the direct result of the local government's relaxation 
of the one-child policy in April 2004.   According to Academics, 
Shanghai's rapidly aging society had strained the individual 
retirement accounts and social pools created by the government 
to provide for the elderly, and that they continued to 
overburden the health care system.  To address these problems, 
the Shanghai government has moved rapidly to build more 
retirement homes and provide training to caretakers.  Contacts 
had differing views on the attitude of the younger generation 
towards the elderly.  One academic said that the younger 
generation had already accepted the notion that the government 
would not be able to provide as many benefits for them and did 
not mind that the government allocated so much money to care for 
the elderly.  Other contacts, many of whom are in their late 
20's, were resentful that they had to contribute so much money 
to the social security system with little hope that they would 
receive support from the government when they retire.  End 
Summary. 
 
-------------------------------- 
 
Shanghai's Increasing Population 
 
-------------------------------- 
 
¶2. (SBU) According to the Shanghai Statistics Bureau (SSB) 
website, the total Chinese population of Shanghai by the end of 
2005 was 19.21 million.  (Note: SSB has not yet posted figures 
for 2006. End note.)  Of the 19.21 million, 13.6 million were 
officially registered citizens, 4.38 million were migrants who 
lived in Shanghai for more than six months and 1.43 million were 
migrants who lived in Shanghai for less than six months.  The 
total population does not include the 200,000 Shanghai citizens 
who lived abroad last year.   In meetings with Congenoffs 
earlier in the fall, Shanghai Academy of Social Sciences 
Institute of Population and Development Studies Associate 
Professor Zhang Henian said the number of migrants living in 
Shanghai was likely higher since the registration system (hukuo) 
no longer served as an effective deterrent to domestic 
migration.  He explained that in the past benefits were linked 
to one's registration and many migrants were reluctant to move 
and risk losing their benefits.  However, over time benefits had 
become de-linked from the registration system and as a result, 
migrants were now less concerned about registration which made 
it more difficult to track domestic migration. 
 
 
 
¶3.  (SBU) SSB figures also indicated that Shanghai's 2005 
natural growth rate (births minus deaths divided by the average 
population) increased slightly for the first time since 1993. 
Fudan University School of Social Development and Public Policy 
Dean Peng Xizhe told Congenoffs that this change was the direct 
result of the local government's recent amendments to the 
one-child policy.   According to Peng, the Shanghai government 
introduced eleven exceptions to the one-child policy in April 
2004 (reftel A), allowing more couples to have a second child. 
For example, the 2004 Shanghai regulations now allowed a husband 
and wife who were both only children to have two children. 
Peng said that since China's first generation of only children 
(born in 1976) had recently married and started having children, 
he expected this initial increase in the natural growth rate to 
be the start of a gradual upward trend.  Peng noted that the 
Total Fertility Rate (the average number of children that a 
woman in a given population gives birth to during her lifetime) 
 
SHANGHAI 00000071  002 OF 004 
 
 
in Shanghai increased from about 0.7 in 2004 to about 0.85 in 
¶2005.  Peng did not expect any further modifications to 
Shanghai's one-child policy before the next five year plan in 
¶2012.  In conversations over the course of the fall, Shanghai 
Academy of Social Sciences Executive Vice President Zuo Xuejin 
agreed with Peng's assessment that there would be no more family 
planning policy changes in the immediate future. 
 
-------------------------------- 
 
Aging Population Trend Continues 
 
-------------------------------- 
 
¶4. (U) While the number of births seems to have increased, 
Shanghai continues to be a rapidly-aging society (reftel B). 
According to Jiaotong University Associate Professor Zhang 
Xiaoyi of the 13.6 million registered citizens in Shanghai at 
the end of 2005, 19.58 percent (approximately 2.66 million 
citizens) were over the age of 60.  In contrast, for the country 
as a whole, only 11 percent of the population was over the age 
of 60 (in China, most men retire at age 60 and most women retire 
at age 55).  Zhang predicted that the elderly in Shanghai would 
increase by about 100,000 citizens per year.   Zuo added that 
China's population was expected to peak in the year 2030 (when 
approximately one third of the national population would be over 
the age of 60).  In contrast, he said that India's population 
would not peak until the year 2070. 
 
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Strains on Individual Retirement Accounts and the Social Pool 
 
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¶5. (U) Contacts also agreed that Shanghai's rapidly-aging 
population posed financial challenges for the local government 
(reftel C).  Since 1949, old-age or pension insurance had been a 
government or work-unit responsibility.  But as the proportion 
of retirees to working people increased in China, the country 
started moving from a pay-as-you-go pension system (where 
today's workers pay for today's retirees) to a system of private 
accounts (where today's workers pay for their own future 
retirement).  According to Zhang Xiaoyi, individual retirement 
accounts (also called personal retirement accounts or PRAs) were 
introduced in 1997.  Individual employees saved about 8 percent 
of their salary in the PRA.  The employer put in another 3 
percent of the employee's salary to add to the PRA.  The 
employer also contributed about 20 percent of the company's 
total wage bill to the social pool; contributions from companies 
to the social pool were amalgamated and dispensed across a wider 
population (reftel D).  These required contribution percentages 
varied somewhat by geographic location, as they were set by 
local and provincial governments. 
 
 
 
¶6. (SBU) Zhang Xiaoyi added that it was common for social pools 
to run deficits.  She said that due to the aging population in 
China, there were so many elderly to support that retirement 
distributions outweighed pension fund collections.  To address 
this problem, the central government established the National 
Social Security Fund in 2000 to bail out provincial pension 
deficits.  Both Zhang and Zuo noted that the central government 
had injected money into the pension systems of poor northeastern 
and western provinces in particular.  In fact, all of the 
experts confirmed that Shanghai is the only province or 
administrative region that has never borrowed money from the 
central government to meet its pension requirements. 
Previously, local governments were simply borrowing money from 
individual PRAs to make up for the deficits in their social 
pools.  As a result, Zhang Xiaoyi said that most PRAs were 
actually empty "black boxes" (reftel D).  According to Peng 
Xizhe, the deficit in the PRAs was so massive that it would 
require 1-2% of the national GDP to bring the accounts current. 
 
 
 
 
SHANGHAI 00000071  003 OF 004 
 
 
¶7. (U) Zhang and Zuo said that the central government had 
recently encouraged provincial governments to start shifting the 
3 percent employer contribution from the PRA to the social pool 
(to help make up for social pool deficits).  Zuo disagreed with 
this strategy because it provided less incentive for individuals 
to participate in the pension system.  According to Zhang, the 
Shanghai government had not yet adopted this recommendation.  In 
October 2006, Shanghai Labor and Social Security Bureau Deputy 
Director Mao Shiti confirmed that in Shanghai, the 3 percent 
employer contribution still went to the personal account. 
Individual contributions remained at 8 percent and Shanghai 
employers paid 19 percent of their total wage bill to the social 
pool.  However, Mao said that in September 2006, China's State 
Council directed Shanghai to replenish its empty personal 
retirement accounts. 
 
 
 
¶8. (U) All of our contacts agreed that the lack of a 
comprehensive health care system that provided adequate health 
care for the elderly has put further strain on the system.  By 
all accounts, most elderly Shanghai residents overused the 
existing health care system, many going to clinics as often as 
once a week for simple ailments due to their lack of personal 
financial security.  (Septel to follow). 
 
--------------------------------------------- -------------- 
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Caring for the Elderly - Shanghai Moving Faster than Expected to 
Address Needs 
 
--------------------------------------------- -------------- 
------------------- 
 
¶9. (U) Although the Shanghai government has moved quickly to 
address the problems created by its large elderly population, 
the pressures are monumental.  As noted in reftel B, by the end 
of 2003 there were 444 old age homes in Shanghai with a total of 
37,000 beds to accommodate less than seven percent of the 
elderly population in need.  According to Shanghai Research 
Center on Aging Director Xu Qihua and Shanghai Civil Affairs 
Bureau Division of Old-Age Work Vice Chief Wang Zhenhua during a 
meeting with Poloff in September 2006, Shanghai added 10,000 
beds in 2005 and Shanghai planned to continue to add 10,000 beds 
every year for the next five years.  (Note: The government's 
work report to the Shanghai Municipal People's Congress released 
on January 28, 2007 reported that Shanghai added 10,200 beds in 
¶2006.  End note.)  Xu acknowledged that 90% of this rapid 
increase was due to favorable tax policies that encouraged 
private sector construction of homes for the elderly.  Peng 
Xizhe said that with 2.6 million elderly people in Shanghai, it 
would take more than 200 years of building beds at the rate of 
10,000 beds per year to catch up to current demand - an 
impossible task.  Peng last year advised the Shanghai government 
to look into the idea of reverse mortgages: retirees transfer 
official ownership of their homes to a bank, which then provides 
them with a monthly living stipend while the retiree lives in 
the home.  Peng said that currently this idea had not taken off 
because Chinese banks were not familiar enough with this vehicle 
to offer the service.  He also mentioned that traditional values 
emphasizing property ownership meant that some elderly would not 
be amenable to the idea. 
 
 
 
¶10. (U) Wang said the Shanghai government hoped most of the 
elderly could be taken care of in their own homes.  The 
government provided 80 million RMB thus far to non-profit 
organizations who trained workers and volunteers to visit and 
care for the elderly in their homes.  In addition, Shanghai 
installed emergency aid calling systems in the homes of 60,000 
retirees so that dispatch centers could quickly send trained 
professionals to those who call.  The government also 
distributed bracelets embedded with a global positioning system 
to about 20,000 elderly people to use when calling for help. 
 
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SHANGHAI 00000071  004 OF 004 
 
 
--------------- 
 
Great Expectations from the Elderly, Divergent Expectations from 
the Young 
 
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--------------- 
 
¶11.  (SBU) Zhang Xiaoyi said that older people believed that the 
government should take care of them since this was a promise of 
the planned economic system.  At the same time, Zhang 
acknowledged that because of its large population, China simply 
could not be a welfare state that provided services to all 
individuals.  Zhang felt that the younger generation had already 
accepted the notion that the government could not provide as 
many benefits for them.   In addition, younger people in 
Shanghai did not mind the government allocating so much money to 
pay for the benefits and care of current retirees.  The young 
recognized that if the government did not pay for the older 
generation, they would need to provide more financial support to 
care for their elderly relatives.  In contrast, other officials, 
many of whom were in their late 20's, indicated to Congenoffs 
that they were resentful of the lack of return on their 
relatively high contributions.  Gong Bo from the Shanghai 
Medical Insurance Bureau indicated that he would never admit to 
someone older that he was resentful, but he felt it was not fair 
that he contributed so much money to the system with little hope 
of recouping the benefits. 
 
 
 
¶12. (SBU) Comment: In every meeting the population experts 
expressed confidence that the government, both the Shanghai 
local government and the central government, appreciated the 
seriousness of the issue and was open to creative solutions. 
Many of the experts Congenoffs met with have been called to 
Beijing numerous times in recent months for policy meetings and 
indicated that the government has fully supported them in 
foreign travel and meetings with foreign experts.  All of the 
experts conceded that the challenges facing China, and 
specifically Shanghai, have more unique characteristics than 
similar characteristics with other aging societies and solutions 
will likely have to come from within.  End Comment. 
JARRETT