Editor’s Note:
Thank you to Mr. Xiang Dongliang for his recommendation and the attention of new readers. Considering that Mr. Xiang’s recommendation and many people are not familiar with the issue of farmers’ pension, I recommend this article I wrote for Bingchuan Thinking, which answers some common questions and makes it easy to quickly understand this issue.
Raising farmers’ pensions is completely feasible and imperative. It is the best starting point to solve many problems in China today, and the good social effects it produces can affect several decades and one or two generations.
Written by Peng Yuanwen
From the “Two Sessions” at the beginning of the year to the recent 15th Five-Year Plan, raising the basic pension for farmers has been a hot topic in 2025.
From January to now, I have written about thirty or forty articles, but in this article, I will try to say less about personal opinions and quote more to sort out the views of all parties, so as to answer some common questions.
01
How much to raise? How to raise it?
First of all, it is definitely not to raise it at the original speed: from 2009 to now, the minimum standard of the national farmers’ basic pension has increased from 55 yuan to 143 yuan, with an average increase of five yuan and five cents per year. Assuming a target of 1,000 yuan, it will take 155 years. The largest increases in 2024 and 2025 were 20 yuan each. Based on this standard, it will take 43 years to increase to 1,000 yuan. Therefore, when the “Two Sessions” at the beginning of the year, Bai Yansong said “small steps and fast running” (increasing 20 yuan per year) was ridiculed, which is not surprising.
The first to propose a clear target and timetable was Liu Shijin, the former deputy director of the Development Research Center of the State Council, from a speech he gave in March this year. The original words are as follows:
Within a year or two, the farmers’ monthly pension will be doubled from more than 200 yuan to more than 400 yuan. It sounds like a big increase, but because the base is very low, doubling it is only 400 yuan. It can reach 600 yuan in three years, reaching the level of the minimum living allowance, which is not high. In another two years, can we strive to increase it to about 1,000 yuan? This level is actually not high, and it is still several times different from the retired employees of urban institutions and public institutions.
(Liu Shijin “Now we have to focus on consumption as we did on investment in the past”)
Last month, Xing Ziqiang, chief economist of Morgan Stanley China, also put forward a similar suggestion: to raise the farmers’ pension to 1,000 yuan/month in 5 years.
Lu Ting, chief economist of Nomura Securities China, also suggested raising farmers’ pensions on many occasions this year. His specific suggestions are:
Short-term goal, within the next three years, raise it to 500 yuan per person per month, and the government will additionally increase fiscal subsidies by 550 billion yuan per year. Medium-term goal (within the next 7 years) to 800 yuan, and the government will additionally increase fiscal subsidies by 1.2 trillion yuan per year. Long-term goal, within the next ten years, to 1,000 yuan, and the government will additionally increase fiscal subsidies by 1.6 trillion yuan.
It is the general consensus of experts and scholars to raise the farmers’ pension to four or five hundred yuan per month in two or three years, and to 1,000 yuan within ten years.
These two figures are not made up: First, in 2023, the per capita food, tobacco and alcohol consumption and clothing expenditure of farmers nationwide was 567 yuan/month. Regardless of tobacco and alcohol, solving the most basic food and clothing problems is about 500 yuan/month; second, in 2023, the per capita consumption expenditure of residents nationwide was 2,233 yuan/month. Even if farmers get a 50% discount, they should have 1,000 yuan.
02
Where does the money come from?
First of all, of course, it comes from fiscal subsidies. Lu Ting has already given the specific figures, with additional subsidies ranging from 550 billion yuan to 1.6 trillion yuan. Pension expenditure is a major part of fiscal expenditure in all countries. China’s current fiscal expenditure is 30 trillion yuan per year. Two trillion yuan can solve the retirement income problem of more than half of the elderly. This is a small amount of money, and China’s welfare expenditure is far below the world average, and there is still a lot of room for improvement.
In addition, it can be transferred from state-owned capital to the pension fund. Xing Ziqiang believes that:
The current proportion of state-owned capital transfer is 10%, and there is still a large room for improvement in this proportion. In the future, a gradual adjustment method can be adopted to gradually increase the transfer proportion to 30%-40%.
Many people agree to raise the farmers’ pension, but the biggest concern is “no money”. In fact, China’s finance currently has large subsidies for pensions. According to the “2024 National General Public Budget Expenditure Final Accounts Table”, the fiscal subsidies for retirees exceed 2 trillion yuan, of which about 23 million retirees within the system are subsidized by more than 900 billion yuan, 120 million enterprise employees are subsidized by 806.67 billion yuan, and 180 million urban and rural residents (95% of whom are farmers) are subsidized by 424.951 billion yuan, with a per capita subsidy ratio of 17:4:1.
According to international practice, fiscal subsidies are basically distributed equally per capita, regardless of the amount of contributions. For example, the Old Age Security in Canada is all paid by the government, and those who have lived for 40 years get the same amount, while the Canada Pension Plan, which “pays more and gets more”, does not have fiscal subsidies; the National Pension in Japan has the same amount paid by each person, and cannot pay more, and then the government subsidizes half of the fund to ensure that each person has the same subsidy amount, while the Employees’ Pension, which is paid by employers and employees according to their income ratio, does not have fiscal subsidies.
Therefore, as long as the fiscal subsidies are evenly distributed (2.16 trillion yuan in fiscal subsidies divided by 320 million elderly people receiving pensions), the basic pension for farmers can immediately be raised to 560 yuan/month. Please note: many countries “discriminate” against high-income retirees and reduce or cancel their fiscal subsidies, so the average distribution is already taking care of high-income groups.
03
Raising farmers’ pensions can solve the lack of domestic demand
Insufficient domestic demand is the most serious problem in China’s current economy, and it is particularly severe this year, because the other two engines (investment and foreign trade) have encountered problems, which need not be elaborated here.
According to my simple and crude idea, there are two ways to boost domestic demand: on the one hand, let the rich spend as much as possible; on the other hand, let the poor have money to spend.
Many of the current measures to boost domestic demand, such as various consumption subsidies (the fourth batch of 69 billion yuan in national subsidies launched nationwide on November 1), belong to the former. Not to mention creating rent-seeking space and distorting market signals, in terms of promoting domestic demand alone, this kind of “digging potential” approach has also come to an end.
The reason is very simple. The rich are, after all, a minority. To make consumption account for 40% of GDP, they have already worked very hard. Spending money is also a matter of strength in numbers. We have to let the poor also have a certain consumption capacity, otherwise the 40% ratio is almost impossible to improve, and we have to change our thinking.
To let the poor have money, the simplest way is to give money, and the best object to give money is undoubtedly farmers.
As a welfare expenditure, the most troublesome thing is the cost of identification. It is best to find a group that can be treated equally without identification. In China, there is no group more suitable than the elderly in rural areas. From the perspective of promoting consumption, because they are generally poor, the money given will be spent. Poverty will force them to spend. The idea that “rural elderly people will not spend even if they have money” is absurd. They are just afraid of being poor. If they have a fixed income every month, who wouldn’t spend money?
Not only that, raising farmers’ pensions will also indirectly affect the children of farmers who have entered the city. The two most difficult generations in China today are often a family (rural elderly people in their sixties and seventies and their children in their thirties and forties). If the parents in the countryside have a pension income of several hundred or thousands of yuan every month, can the children also consume with confidence? For migrant workers who have not been able to settle down in the city, if they do not have to worry too much about their old age in the countryside, can they also be more bold in spending money?
In this way, it involves the whole body, and it will drive the hundreds of millions of people in China who have the least consumption capacity and the least dare to consume, and boosting domestic demand is just around the corner.
According to Xing Ziqiang’s calculation, this move can increase the proportion of consumption in GDP from 40% to 45%, and make China’s consumer market reach a scale of 10 trillion US dollars. According to Liu Shijin’s estimate, it can boost GDP growth by about 1.2 trillion yuan and contribute one percentage point.
04
Forms of raising farmers’ pensions
From the perspective of system design, there are roughly three ways to raise farmers’ pensions.
First, directly increase the basic pension for urban and rural residents. This is the simplest, but also the least amount of system improvement. I would call it the worst policy.
With the current situation in China, not only should the farmers’ pension be increased, but also the retirement pension within the system should be reduced to achieve “this increases and that decreases”. At present, the replacement rate of retirement pensions within the Chinese system (referring to the ratio between the pension and the pre-retirement wage income) is generally above 80%, and it is also common to exceed 100%, which is far higher than the high-welfare countries in Northern Europe. Zheng Gongcheng, president of the China Social Security Society, has repeatedly emphasized that the replacement rate of retirement pensions within the system should be reduced to 50%.
Simply increasing the basic pension for urban and rural residents has no impact on the high retirement pensions within the system. If this method is adopted, at least a method of suspending the growth of retirement pensions should be established simultaneously. My friend Pu Baoyi suggested freezing the increase of retirement pensions above 10,000 yuan for 10 years. I think it may be more reasonable to refer to the average wage of various places. Those that are higher than the average wage should not be increased.
Second, establish a universal non-contributory pension system. Doing so can not only solve the problem of fairness, but also deal with the upcoming pension crisis, and can also promote economic development, which is the best policy. This is also the suggestion of Cai Fang, the former vice president of the Chinese Academy of Social Sciences.
In simple terms, a universal pension is a pension that does not require contributions, is borne by the government, and covers all groups. It was mentioned earlier that the government’s subsidy for pensions exceeds 2 trillion yuan. If it is distributed equally per capita, it can reach 560 yuan/month. It can completely establish a universal non-contributory pension system according to this standard. In addition, no more subsidies will be given, and the employee pension insurance fund will try to achieve a balance in the current period, so that the purpose of “this increases and that decreases” can be naturally achieved.
As soon as non-contribution is mentioned, some people may worry that the fiscal burden will be too heavy. On the contrary, I think this is controllable: even if it is calculated at 1,000 yuan/month per capita, the fiscal expenditure is only 4 trillion yuan. If it continues to increase at the current rate, it is estimated that it will reach a scale of 10 trillion yuan within 20 years. By then, China will enter a deeply aging society, and young people will be unable to bear it.
From the perspective of economic development, if there is a universal pension to provide a safety net, it is possible to reduce the proportion of employee pension insurance contributions, from the current 24% for employers and individuals to about 12% (the United States, Canada, and South Korea are all at this level), which is of great benefit to revitalizing the economy and solving employment.
This plan is the most difficult because the group that suffers the most is within the system, but it is the best.
Third, promote the “Chengdu Model”. The so-called “Chengdu Model” is that after farmers pay a certain amount of pension insurance, in addition to the fixed fiscal subsidies, they also refer to the form of urban employee pension insurance and calculate the basic pension by multiplying the average wage of the society by a coefficient. At present, Chengdu farmers can pay the upper limit of urban and rural resident pension insurance, and can calculate the basic pension by a coefficient of 0.5, which is 707 yuan a month, plus a fiscal subsidy of no less than 163 yuan, which is more than 800 yuan, second only to Beijing and Shanghai.
As mentioned earlier, the subsidies for urban and rural resident pension insurance are far lower than those for urban employees. If the same calculation method is adopted, the subsidy amount will be greatly leveled. Not only that, the “Chengdu Model” also means that Chinese people can apply the same pension system.
The shortcomings of the “Chengdu Model” are: it is necessary to pay the upper limit to multiply a higher coefficient, and many farmers cannot afford it. Although this model can encourage farmers to pay more pension insurance, a system patch should be added for low-income groups: provide interest-free or low-interest loans. This system design is between the two, and can be called the middle policy.
The above mainly talks about the economic impact. In fact, the political benefits are no less than the economy. In short, raising farmers’ pensions is completely feasible and imperative. It is the best starting point to solve many problems in China today, and the good social effects it produces can affect several decades and one or two generations.
Finally, let me tell a short story: In 2014, the pension system was reformed to eliminate the concerns of people within the system, and it was clearly promised that their interests would not be harmed. Therefore, the average annual wage income of employees on the job increased by 50% in three years, which was enough to offset the pension insurance expenditure (8% for the basic pension insurance individual plus 4% for the occupational annuity individual, totaling 12%). The average retirement income within the system increased from more than 2,000 yuan per month in 2014 to more than 6,000 yuan now. This aspect is done very well. In this regard, it is not difficult to raise the farmers’ pension.
I’m thinking that it will increase by at least 100 yuan next year, and it will no longer increase by a few yuan, a dozen yuan, or twenty yuan as it used to be.
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