Product Innovation and Demand Matching in China's Retirement Finance: Evidence Across Income Groups_Vol. 2 No. 6 (JEL 2025)_Journal of Economics and Law (ISSN: 3005-5768)

Home > Journal of Economics and Law (ISSN: 3005-5768) > Vol. 2 No. 6 (JEL 2025) >

Product Innovation and Demand Matching in China's Retirement Finance: Evidence Across Income Groups

Download PDF

DOI: https://doi.org/10.62517/jel.202514611

Author(s)

Haoran Zhang

Affiliation(s)

Shanghai University of Finance and Economic, Shanghai, China

Abstract

China's rapid population aging heightens the need for well-functioning second- and third-pillar arrangements, yet frictions persist between product supply and stratified household demand. We take a demand-side perspective and examine whether-and through which channels-households at different income levels participate in retirement-related financial products (supplementary pension/annuity, commercial health insurance, housing provident fund, and marketable securities). Using micro data from the 2019 China Household Finance Survey (CHFS) and the 2020 China Health and Retirement Longitudinal Study (CHARLS), we estimate baseline logit/probit models with province fixed effects, province-clustered standard errors, and survey p-weights, and implement structural equation modeling (SEM) to assess mediation by financial literacy and risk attitudes; heterogeneity and robustness are evaluated by subgroup interactions and alternative link/measurement choices. The effective household sample is N = 33,835. Participation exhibits a clear post-control income gradient: relative to the lowest-income tercile (T1), T3–T1 average marginal effects (pp) are 3.7 for supplementary pensions, 6.3 for health insurance, 22.7 for the housing provident fund, and 3.8 for marketable securities; baseline T1 participation probabilities (%) are 0.1, 2.3, 2.2, and 0.6, respectively. Model fit is adequate to strong (AUCs 0.768–0.870 across outcomes). We find steeper income–participation slopes in urban areas: the T3–T1 contrast differs by +3.29 pp for securities and +10.91 pp for the housing provident fund. Mediation analysis indicates positive but statistically non-significant indirect effects via literacy and risk: for securities, the shares of the total income effect explained by literacy and risk are 0.1% (95% CI [−7.6, 7.8]) and 6.2% (95% CI [−1.9, 14.4]), respectively. Findings are robust to alternative income definitions and ranking schemes (logs/asinh, winsorization, weighted vs. unweighted tiles) and to probit, complementary log–log, and rare-events corrections under the same fixed-effects/weighting discipline. Building on the evidence, we outline a tiered product-and-policy toolkit: affordability and simple defaults for lower-income households, reliable accumulation and accessibility for middle-income households, and diversified, customizable portfolios for higher-income households.

Keywords

Retirement Finance; Product Innovation; Demand–Supply Matching; Income Heterogeneity; Financial Literacy; Structural Equation Modeling; Risk Attitudes; CHFS/CHARLS Microdata; China; Housing Provident Fund

References

[1] Hu, J. (2013). Retirement finance: Conceptual definition and practice issues. Finance & Trade Economics, 34(6), 43–52. [In Chinese]. [2] Sun, X. (2016). Status and development of China’s retirement-finance industry. Chinese Journal of Gerontology, 36(12), 3062–3065. https://doi.org/10.3969/j.issn.1005-9202.2016.12.111. [In Chinese]. [3] Zhou, X. (2022). Empirical analysis of key obstacles to the development of China’s pension finance. Financial Theory & Teachin, 2022(5), 45–50. [In Chinese]. [4] Wang, Q. (forthcoming). Personalized pension-finance services and market demand. Forthcoming / working paper. [In Chinese]. [5] Li, C., Wu, W., & Lu, Y. (forthcoming). Theoretical logic and practical paths for devel- oping pension finance in China. Forthcoming / working paper. [In Chinese]. [6] Cheng, H., Liu, L., & Pan, L. (2024). How Japan/U.S. capital markets support pension finance: Practices and lessons. China Forex, 2024(20), 68–70. [Commentary; non-academic source]. [In Chinese]. [7] Wu, Q. (2024). Pension finance is the trend: How to build healthy interaction with capital markets? Sohu (repost). [Commentary; non-academic source]. Retrieved from https://www.sohu.com/a/754002378_121117082. Accessed 2025-10-09. [In Chinese]. [8] National Bureau of Statistics of China (NBS). (2023). China Statistical Yearbook 2023. Beijing: China Statistics Press. Available at http://www.stats.gov.cn/sj/ndsj/. [Official yearbook]. [9] Ministry of Human Resources and Social Security (MOHRSS). (2023). Statistical Bulletin on the Development of Human Resources and Social Security. Available at http://www.mohrss.gov.cn. [Official statistical bulletin]. [10] Ministry of Housing and Urban–Rural Development (MOHURD). (2023). National Housing Provident Fund Annual Report (2023). Available at https://www.mohurd.gov.cn. [Official report; housing provident fund]. [11] Gan, L., Yin, Z., Jia, N., Xu, S., & Ma, S. (2013). Data You Need to Know About China. Springer. [Official CHFS data reference]. [12] Zhao, Y., Strauss, J., Yang, G., Giles, J., Hu, P., Lei, X., Park, A., Smith, J. P., & Wang,Y. (2013). China Health and Retirement Longitudinal Study (CHARLS), 2011–2012 National Baseline User’ Guide. National School of Development, Peking University.