Pension funding and coverage problems might lead to unrest in China, according to two Federal Reserve Bank experts.
Michael H. Moskow, former president and chief executive officer of the Federal Reserve Bank of Chicago who is now vice chairman and senior fellow for the global economy of the Chicago Council on Global Affairs, and Cathy Lemieux, senior vice president at the Chicago Fed, produced a report about their visit to Beijing and Shanghai to examine Chinas economy and financial system.
Social welfare programs pensions, health care, and education are potential sources of unrest, they wrote in the February issue of the Chicago Fed Letter, published Jan. 18 by the Federal Reserve Bank of Chicago. Pensions cover only city workers, who make up approximately 28% of the population. Chinese officials acknowledge that pension funds are basically insolvent.
Some challenges China faces as it continues to modernize its economy and improve the functioning of its financial markets include corporate governance.
But they noted, Chinese officials are taking steps to improve corporate governance. These steps include the Shanghai Stock Exchanges implementation of strong governance rules for listed companies, such as a requirement that one-third of corporate directors be independent and that the role of chairman be separated from that of chief executive officer. Barry B. Burr