The social insurance law, adopted recently by the Standing Committee of the National People's Congress, will take effect on 1 July 2011. It governs five categories of social insurance: pension, medical, unemployment, work-related injury and maternity. The first three categories are funded by employers and employees, while the latter two are financed by employers alone.
In principle, both Chinese and foreign staff employed by Chinese enterprises were already required to participate in the local social insurance system. In practice, however, most foreigners did not participate.
Now, the new law stipulates that foreigners are entitled to social insurance benefits that are equivalent to those granted to Chinese nationals. This represents a milestone, as up to know only certain local regulations (e.g., in Shanghai for medical, pension and workrelated injury insurance) provided voluntary options for foreigners to participate in the Chinese social insurance system.
The new law is silent on which social insurance categories will be available to foreigners, whether participation is compulsory or optional and which consequences non-compliance with social insurance obligations may trigger. Also, it remains to be seen how contributions will be treated if foreigners permanently leave China before being entitled to draw a pension. (Currently, these benefits can be drawn by females starting at the age of 55 and males at 60, provided a minimum contribution period of 15 years was achieved.) The current understanding is that foreigners can only claim reimbursement of contributions made to their personal social insurance accounts. (Contributions are allocated between a personal account for each individual and a pooled account for the entirety of the insureds.) Given these uncertainties, more detailed regulations governing these matters are expected.
Another implication arising from the new law is that China will probably enter into new bilateral social insurance agreements with other countries in order to avoid the necessity of dual participation in social insurance programs in China and the foreigner's home country. Thus far, only a few such bilateral agreements exist, for example, with Germany and South Korea.
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