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Real pension hike needed

2014-01-10 09:14 China Daily Web Editor: Wang Fan

The latest increase in pension will be of greater help than it seems for the country's about 74 million retirees from enterprises thanks to the milder-than-expected inflation in 2013. However, to better prepare for the rapid aging society and allow more real pension growth, Chinese policymakers have to keep price hike under control.

On Wednesday, the government raised the basic pension of enterprise retirees by 10 percent starting Jan 1, 2014. The increase in enterprise retirees' pension for the 10th consecutive year is a welcome move especially because the world's second largest economy is likely to register the slowest growth in a decade.

It is one thing to increase pension when double-digit growth is the norm and quite another when long-term growth potential is shifting into a lower gear. Given that the number of retirees is expected to grow in the coming decades, every increase in pension will require larger funds to support.

Fortunately, with consumer inflation rising by only 2.3 percent in 2013, well below the 3.5 percent target set by the government, policymakers have been able to raise the pension for the tens of millions of retirees so that they too can share the fruits of China's economic growth.

While the government's efforts to keep improving the lot of the retirees is to be applauded, policymakers should exercise caution while responding to cries to loosen the monetary policy to stimulate growth.

Just because the low inflation rate is not a major concern for the moment, some people argue that a neutral monetary policy, if not an overtly loose one, would be more favorable to economic growth than the relatively tight one we have now.

That may be true for some enterprises and financial institutions which rely heavily on cheap credit, but it definitely would not be in the long-term interest of the national economy.

Since the lower-than-predicted inflation was largely because of lower increase in food prices last year, it benefited pensioners as well as other low-income groups who spend a comparatively large part of their income on food.

Therefore, there is no reason why policymakers should allow the hard-won pension growth to be easily eroded by runaway price hikes that excessive monetary supply will entail.

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