China’s Unemployment Fund Posts Deficit as Claims Surge
China’s unemployment insurance fund recorded an annual deficit of 9.13 billion yuan ($1.35 billion) in 2025, as benefit payments to unemployed workers surged 34.2% year-on-year while lower contribution rates constrained revenue, according to Caixin Global. The deficit, which began emerging in September 2025, highlights growing strain on China’s social safety net amid a weak economic climate and structural labor market challenges.
Context
The unemployment insurance fund paid 161.6 billion yuan in basic-living benefits for unemployed people — including unemployment payments and health-insurance contributions — in 2025, up sharply from the previous year. Total fund revenue reached 207.4 billion yuan against total expenditure of 216.5 billion yuan, resulting in the annual shortfall. The year-end cumulative balance fell to 325.3 billion yuan, down 9.1 billion yuan from 2024.
As of end-2025, 249.18 million people were enrolled in unemployment insurance nationwide, up 1.3% year-on-year. However, the number of people actually receiving unemployment benefits was 5.57 million, up 20.3% year-on-year, indicating that a growing share of the workforce is turning to the safety net for support.
Key Developments
The fund first slipped into deficit in September 2025. After running a surplus of 1.66 billion yuan from January to August, the period from January to September saw revenue of 152.73 billion yuan against expenditures of 154.58 billion yuan, as Caixin Global reported in June. The trend has continued into 2026: from January to April, the fund recorded a deficit of 330 million yuan, with spending reaching its highest level for the same period since 2020.
Labor economics professor Tang Daisheng attributed the surge in benefit claims to a weak economic climate, forcing people to rely on unemployment insurance. The surveyed urban unemployment rate peaked at 5.4% in March 2026 before easing to 5.2% in April. Underlying these headline figures, the unemployment rate for workers aged 25-29 reached 7.7% — the highest since data became available — while the rate for migrant agricultural workers climbed to 5.7%, a three-year high.
Despite the rising claims, the system’s coverage remains strikingly narrow. Li Lei, an associate professor at Yunnan University, noted that the benefit-coverage rate — the proportion of unemployed workers receiving support — was only 14.4% in 2023, compared to 40%-70% in developed countries. An evaluation report by the China Association of Social Security found that less than a quarter of registered urban unemployed actually receive benefits. Mao Yufei from the Capital University of Economics and Business explained that voluntary resignations or contract expirations fail the “involuntary” criterion, and claims processes remain cumbersome, leaving many without support.
Analysis
The deficit reflects both cyclical weakness from slow economic growth and structural issues including low coverage rates, strict eligibility criteria, and the exclusion of gig and flexible workers. The paradox is striking: the system is simultaneously underfunded and underutilized.
China’s gig economy has expanded from 120 million workers in 2015 to over 300 million in 2026, yet flexible workers have limited social security coverage — around 19% since early 2023, compared to over 55% for traditional employment. This leaves a vast and growing segment of the workforce outside the safety net.
The broader economic implications are significant. As Zhao Wei wrote in a Caixin commentary, “Consumption is not a switch flipped by short-term subsidies. It is the byproduct of a secure, well-compensated, and confident workforce.” Weak labor market conditions and inadequate social protections are driving defensive saving and deleveraging among households, undermining government efforts to boost consumption.
Meanwhile, the overall social insurance system remains stable for now. As of June 2026, the three social insurance funds (pension, unemployment, work injury) had total revenue of 4.88 trillion yuan and total expenditure of 4.14 trillion yuan in the first half of 2026, with a cumulative balance of 11.07 trillion yuan, according to Xinhua via Workercn.cn. Ministry of Human Resources and Social Security policy research director Cui Pengcheng stated that “social security systems continue to optimize.”
What’s Next
Experts and local bureaus have proposed several reforms: easing eligibility criteria for unemployment benefits, introducing transitional subsidies for voluntary resignations with legitimate reasons, creating a gig-order contribution model for flexible workers, and increasing spending on active labor-market policies such as vocational training. However, policymakers face a difficult trade-off between supporting businesses through lower contribution rates and maintaining the fund’s solvency as claims continue to rise.
With China’s consolidated fiscal deficit set at 8.1% of GDP for 2026 — up from 7.2% in 2025 — the room for additional government transfers to shore up the fund may be limited. The trajectory of the deficit in the coming months will be a key indicator of whether China’s labor market is stabilizing or facing deeper structural challenges.