Recently, the Chinese government made two major moves related to its social insurance system. First, China started implementing the social security totalization agreements signed with Canada and Finland. Second, China issued a plan to potentially merge China's maternity and medical insurance programs.

Social security totalization treaties

Although the social security totalization treaties with Canada and Finland were signed in 2015 and 2014 respectively, China did not implement the China-Canada treaty until January 1, 2017 and the China-Finland treaty until February 1, 2017.

Under the treaties, employees who are hired by entities in Canada or Finland but seconded to work in China can be exempted from certain social insurance contributions in China. For Canadian secondees, the exemption covers pension contributions. For Finnish secondees, the exemption covers both pension contributions and unemployment insurance contributions. All of these exemptions are likewise available to Chinese secondees working in Canada and Finland.

However, both treaties are clear that the exemptions are not automatic. Seconded employees unable to provide proof of enrolment in their home country's social security scheme must fully contribute to the host country's social insurance scheme.

Maternity and medical insurance merger

According to the Trial Plan for Merging Maternity Insurance and Medical Insurance, the merger of the maternity and the medical insurance programs will be tested on a trial basis in 12 designated cities. Major first-tier cities such as Beijing, Shanghai, Shenzhen and Guangzhou are not included among the trial cities. The trial will begin by July and then last approximately one year. If the government considers the trial a success, the maternity and medical insurance program merger will be extended nationwide. If extended nationwide, the current Social Insurance Law will need to be amended.

Key take-away points:

Since pension contributions are the most costly of the five social insurance contributions in China, the social security totalization treaties with Canada and Finland will significantly reduce costs for seconded employees from Canadian and Finnish companies in China.

Although the maternity and medical insurance reform will not reach major first-tier cities like Beijing and Shanghai for at least another year, companies should monitor the trial program to understand whether and how the insurance merger might be implemented nationwide.