China Court Outlaws Social-Insurance Evasion, Squeezing Small Businesses

China’s Supreme People’s Court has ruled that it is illegal for companies and employees to bypass mandatory social-insurance contributions, ending years of spotty enforcement. The decision, announced earlier this month and set to take effect on 1 September, is intended to bolster underfunded pension coffers and lay the groundwork for broader welfare reforms in the world’s second-largest economy. Economists warn the move could strain an already fragile labour market. Societe Generale estimates the additional levies could shave about 1% off gross domestic product if fully enforced, while a Zhonghe Group survey last year found just 28.4% of more than 6,000 firms were fully compliant. Small businesses say higher payroll costs are forcing layoffs or steep wage cuts, raising fears of reduced consumer spending. The court’s action underscores Beijing’s challenge in shifting from an investment-led model to one driven by household consumption. Roughly half of China’s workforce—387 million people—currently pays into the urban pension scheme, and analysts argue the state will eventually have to shoulder more of the burden to avoid suppressing jobs and wages. Separately, President Xi Jinping this week urged officials to clear overdue payments to private companies, warning that persistent arrears risk eroding public trust in government. His remarks highlight mounting pressure on authorities to support cash-strapped firms even as they tighten enforcement of social-insurance rules.