Subsidies from Beijing to shore up the pensions system were quadrupling every four years, a trend that in the long term is not sustainable, said Pei Minxin of the Carnegie Endowment for International Peace in Washington Wednesday.

``I see a huge problem coming in 10 years' time - not in the next five years,'' he told a conference organized by the Lee Kuan Yew School of Public Policy in Singapore.

China started to reform its pensions in 1997 from a pay-as-you-go scheme, where taxes from the current generation of workers pay for today's pensioners, to a three-pillar system: a public pay-as-you-go scheme, a funded individual account and an employer-based pension.

Pei said the reforms have allowed Beijing to accelerate the closure of inefficient state-owned enterprises, which had been responsible for providing cradle-to-grave welfare, by creating a safety net that has kept the social peace.

But he was critical of the government for not putting pension finances on a sustainable footing.

Although only a small part of the population is covered by the scheme, they receive up to 80 percent of pre-retirement income, against a global average of 50 percent. What is more, men retire at 60 and women at 50 or 55.

The failure to reduce these entitlements reflects the weakness of the government and the ruling party, which does not want to alienate its core urban supporters, Pei argued.

``It does not want to hurt a very powerful constituency,'' he said. ``It can discriminate against rural residents and, through its policies, it does do so. But it cannot afford to antagonize the urban population.''

Only half of urban workers get a pension but the figure for rural China is just one in 10, he said.

Pei said the initial pension reforms were inspired by former premier Zhu Rongji. But momentum had faded since Zhu retired in 2003.

``This has not been a top priority for the new leadership, and that worries me,'' he said.

In another sign of weakness, only four of China's 31 provinces have followed Beijing's instructions to set up provincial pension pools, Pei said.

Because of its one-child policy to curb population growth, China has been described as the first society that will get old before it gets rich. Labor Minister Zheng Silin was cited by the China Daily last month as putting the current pensions shortfall at US$300 billion (HK$2.34 trillion).

Huang Yukon, a senior adviser to the World Bank and formerly its country director in Beijing, said China's pension problems are bound up with a host of difficult issues, including how to transfer wealth from richer urban areas to poorer rural regions.

``China overall has moved impressively in recent years but still needs to go a long way,'' he said.

REUTERS