Social security compliance: back in focus

Research evidence excerpt

Social security compliance: back in focus

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China Consumer

Industry Overview

The background… 27 July 2026

China is stepping up efforts to raise the Social Security Contribution Base Compliance Equity

Rate (defined as Declared Base / Statutory Required Base). Under Social Insurance Law, China

the contribution base should cover total compensation (including allowances, overtime Consumer

pay and bonuses). In practice, however, the declared base for many companies often Chen Luo, CFA >>

covers <60% of the statutory requirement, due to incentives for both employers and Research Analyst

employees to minimize contributions – employers to reduce costs and employees (esp. Merrill+852 3508Lynch2009(Hong Kong)

migrant workers) to maximize take-home pay. Leveraging China’s increasingly digitalized chen.luo@bofa.com

tax and social security administration systems, regulators are introducing a progressive Lucy Yu >>

Research Analyst

roadmap to improve compliance. The current target is to raise the compliance rate to Merrill Lynch (Singapore)

≥70% by 2026, with the ultimate goal of achieving 100% compliance normally by 2030, +65 6678 0417 lucy.yu@bofa.com

though implementation timelines vary across regions.

Jack Chen >>

Merrill Lynch (Hong Kong)The impact… +852 3508 8776

1) A gradual labor-cost step-up over 3-5 years, as compliance rates progress to ruofan.chen@bofa.com

100%. No retrospective impact is expected for years prior to 2026. While it is too early Alice Ma >>

to quantify the impact now, Exhibit 1 outlines the social security exposure of select Research Analyst Merrill Lynch (Hong Kong)

companies. 2) Labor-intensive/private sectors under more pressure. Labor- +852 3508 8752

intensive service and manufacturing sectors with thin margins may face higher impact.