Social Insecurity

Like many of the oracular pronouncements of China's Communist Party, the arrest last week of Shanghai Party boss Chen Liangyu had multiple meanings. On one level, the purge of a prominent Politburo member—over allegations that Chen allowed associates to milk Shanghai's pension accounts to fund investments in the city's booming real estate—was widely seen as a political move by President Hu Jintao to consolidate power ahead of next year's Party Congress. On a second level, Chen's arrest, along with the news late last week that real estate speculation was also under scrutiny in other parts of the country, reflected Beijing's seriousness about taking China's overheated property markets off the boil. But Chen's downfall might be sending yet another, equally important message to officials: Keep your hands off China's pension system.

Despite its dizzying growth, China is going to get old before it gets rich. "China has both a pension problem and a demographic problem," says Michael Pettis, a finance professor at Peking University. Existing pension systems are inadequate and cover only 13% of the population; with the number of Chinese over 60 expected to soar from nearly 140 million now to 250 million by 2020, the financial burden is only worsening. In that context, the allegations against Chen "are very serious if they are true," says a former economic-planning official. "[Pension reform] is one of the most important things the government is trying to do."

But Chen's arrest, while signaling that the skimming of pensions won't be tolerated, hasn't necessarily reassured those most likely to depend on them. Yuncheng, 70, a retired Shanghai municipal official, regards Chen's alleged actions as a sign that the Communist Party has lost its way. He fumes: "They are more corrupt than the Kuomintang."