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Scholar: China's Social Security Burden Hampers Companies

A Tsinghua professor argues that the social security contributions paid by Chinese companies are too high and government assets should play a larger part in covering social security.

By Xu Mouquan Updated Feb.16

Judging from tax alone and by international standards, the taxes collected in China are not that high. The better part of the burden - taxes and dues - on enterprises in China is social security contributions,” said Professor Bai Chong’en, vice-president of the School of Economics and Management of Tsinghua University, at the 2017 Annual Meeting of Chinese Economists 50 Forum on February 15th. 

Doing Business 2017, a World Bank report that measures the business environment around the world, shows that China ranks 131st out of the 190 economies assessed in terms of the taxation burden - with a lower rating indicating a tougher environment. “This indicates that internationally, China imposes a relatively heavy burden of taxation on its enterprises,” said the vice-president. 

Based on the World Bank’s data, Bai noted, the taxes and dues paid by Chinese companies, excluding value-added tax (VAT) but including income tax, other taxes, and social security contributions, take up 68 percent of total corporate profits. But the proportion for the US is 44 percent, that for Sweden 49 percent and the average for East Asia and the Pacific 34 percent.

Bai emphasized that social security contributions by Chinese companies take up an extremely high share of corporate profits, at 49 percent, whereas the share for the US is 10 percent and for Sweden, a welfare state, 35 percent. “if we add up taxes (including VAT) and fees paid by Chinese companies, the burden is quite heavy, but the biggest share comes from social security contributions,” said the professor.

He proposed that social security should be better covered by government assets instead of enterprise contributions, thereby reducing the burden on enterprises. “If we strengthen the assessment of the balance sheet and investment performance, we can tighten the management of government assets, reining in governments’ urge to invest to some extent,” he said. “And more government assets would go into supporting social security, thus bringing down the proportion of social security contributions in corporate profits.”