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pension coverage, especially in rural areas.2 Privatization and increasing informalization of the labor market have made it difficult for local governments to effectively extend social insurance coverage (including pensions) to the entire population.

With these future challenges in mind, this chapter analyzes how China’s current elderly finance their consumption expenditures. We focus on household expenditure per capita as the preferred measure of living standards, since it best captures consumption, which directly enters individuals’ utility functions, and because annual consumption reflects permanent income better than annual income, which is subject to greater year-to-year fluctuations, especially for rural households.

We utilize a unique data set with highly detailed information on income, consumption, and public and private transfers of China’s elderly—the China Health and Retirement Longitudinal Study (CHARLS) pilot survey conducted in Gansu and Zhejiang provinces in 2008. We calculate elderly consumption poverty rates and analyze the extent to which the elderly rely upon their own income (including from pensions), income from other household members, public transfers, private transfers, and savings to finance their consumption. Using regression analysis, we further examine how poverty status and the use of different financing sources are related to different characteristics of the elderly, such as the number of children, living arrangements, and availability of pensions.

Throughout the analysis, we make a point of distinguishing between urban versus rural residents because of the significant differences in economic and social institutions affecting the two populations. We define urban versus rural status based on whether an individual’s official family residential registration (hukou) is nonagricultural (urban) or agricultural (rural). There is a long history in China of preferential policies toward nonagricultural residents. Urban residents for many years enjoyed an “iron rice bowl” of guaranteed employment, housing, health insurance, pension support, and other subsidies that were unavailable to rural residents even if they migrated to cities (Chan and Zhang, 1999; Solinger, 1999). Even after three decades of reform, urban residents continue to enjoy more generous subsidies to support minimum standards of living, and better health insurance and access to housing. Under housing reforms in the late 1990s, state-supplied housing was sold to nonagricultural residents at highly subsidized prices. Family planning policies were stricter for urban residents. As a result of all of these differences, the sources of consumption financing are likely to be very different for urban versus rural residents. One limitation we face in our analysis is that only 18.5%

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2 A new rural pension program initiated after the CHARLS pilot in 2008 had reached 23% of rural counties by year-end 2010 and will eventually be scaled up nationally.



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