China passed a law this summer requiring foreign workers and their employers to contribute to a social security fund. The result has been confusion among business and bureaucrats alike about how it will work.

Underscoring the uncertainty, the Ministry of Human Resources and Social Security said in a press briefing Friday that it doesn’t quite have the plan all in place. Many of the details of the law are still being ironed out, said Xu Yanjun, the deputy director of the Ministry of Human Resources and Social Security.

Still, the details offered Friday represent the best information yet on the burden employers – particularly foreign companies – will face as China moves to create the sort of social safety net commonly found in other countries and long demanded by its population.

The lack of clarity has caused a stir among China watchers and foreign residents in the country as the social security plan–which covers pension, medical expenses, unemployment, work-related injuries, and maternity–will have a significant financial effect on businesses with foreign staff.

To date, no city in China has begun to collect the taxes, despite the law having gone into effect on Oct. 15. But all local governments will begin collecting by the end of the year and the payments will be retroactive. That means that no matter when the system actually launches, payments will be required from the date of Oct. 15 forward, said Mr. Xu.

City governments decide the level of contributions to be paid by the company. Beijing, for example, would require payments of 20% of a worker’s monthly salary for pensions as well as another 10% for medical.

Nationwide, individuals can expect to pay 10% of their monthly salaries, Mr. Xu said.

But then there’s the cap. Some businesses have been reassured by the fact that payments will be capped based on the local minimum wage. For example, Beijing would cap the payment at 12,603 yuan ($1,981). Other places, however, would offer their own cap levels, further complicating the process. The city of Dalian, for example, has no cap at all, potentially making foreign employees quite expensive.

Another component the government has yet work out is unemployment insurance. Foreigners who lose their jobs in China typically also lose their right to live in the country, making it difficult for them to actually collect their unemployment.

“We’re aware there’s a disconnect and we’re informing the employment and visa bureaus so that we can address the problem,” Mr. Xu said.

There are an estimated 600,000 foreigners living in China, nearly 232,000 of which have work permits, according to 2010 Census data. For most of those workers, the country’s plan duplicates insurance programs that employers already provide them.

The Ministry of Human Resources and Social Security claims that duplication is not a problem. Foreigners who are from countries that have bilateral social security agreements with China can opt out of the program, provided that their home countries send proof that insurance has been paid at home, Mr. Xu said.

To date, only Germany and South Korea have bilateral agreements with China. Japan, Sweden, France, and Belgium have approached China to negotiate such deals, Chinese officials said.

The U.S. “has not expressed a wish to carry out bilateral agreements,” said Mr. Xu, adding that the Ministry gave advanced notice to all countries prior to the law’s passage.

China is quick to defend its new system. Officials point out that most other countries have similar social security plans for foreign workers. “Some people are worry that this will impede international talents from working in China,” said Mr. Xu. “But we believe this will bring welfare to those talents.”

Leaders have been emphasizing the rise of their own domestic social security scheme, which demographers say is necessary because of a ballooning aging population.

When asked if China is using foreigners to help fill a deficit needed to care for its aging citizens, Mr. Xu said, “We have no intention of grabbing money from foreigners, and the money of these 200,000-plus workers is insignificant when we’re talking about the welfare of China’s entire population.”

While Mr. Xu said the plan is still being formulated, he also said that foreigners have been too skeptical. “Trust China,” he said. “Trust the Chinese government.”

– Laurie Burkitt. Follow her on Twitter @lburkitt

China has generally implemented reforms in a gradualist or piecemeal fashion.

In 2006, China announced that by 2010 it would decrease energy intensity 20% from 2005 levels.

The country’s per capita income was at $6,567 (IMF, 98th) in 2009.

Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated.

The disparities between the two sectors have combined to form an economic-cultural-social gap between the rural and urban areas, which is a major division in Chinese society.

China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories.

Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s.

Both forums will start on Tuesday.

“China is now the fifth largest investing nation worldwide, and the largest among the developing nations,” said Shen Danyang, vice-director of the ministry’s press department.

China reiterated the nation’s goals for the next decade – increasing market share of pure-electric and plug-in electric autos, building world-competitive auto makers and parts manufacturers in the energy-efficient auto sector as well as raising fuel-efficiency to world levels.

Although China is still a developing country with a relatively low per capita income, it has experienced tremendous economic growth since the late 1970s.

Agriculture is by far the leading occupation, involving over 50% of the population, although extensive rough, high terrain and large arid areas – especially in the west and north – limit cultivation to only about 10% of the land surface.

China is the world’s largest producer of rice and wheat and a major producer of sweet potatoes, sorghum, millet, barley, peanuts, corn, soybeans, and potatoes.

Livestock raising on a large scale is confined to the border regions and provinces in the north and west; it is mainly of the nomadic pastoral type.

Offshore exploration has become important to meeting domestic needs; massive deposits off the coasts are believed to exceed all the world’s known oil reserves.

China’s leading export minerals are tungsten, antimony, tin, magnesium, molybdenum, mercury, manganese, barite, and salt.

The largest completed project, Gezhouba Dam, on the Chang (Yangtze) River, opened in 1981; the Three Gorges Dam, the world’s largest engineering project, on the lower Chang, is scheduled for completion in 2009.
Beginning in the late 1970s, changes in economic policy, including decentralization of control and the creation of special economic zones to attract foreign investment, led to considerable industrial growth, especially in light industries that produce consumer goods.

Other leading ports are rail termini, such as Lüshun (formerly Port Arthur, the port of Dalian), on the South Manchuria RR; and Qingdao, on the line from Jinan.

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Beijing on Foreigners, Pension Payments: ‘Trust China’