The Impact of Social Security System Reform on Informal Sector Participation: A Comparative Analysis of China and Vietnam

In 2018, Reform Plan of the State Tax and Local Tax Collection Administration System, a major structural reform of China’s social security system, was passed by the National People's Congress. It aimed to encourage the formalization process within the informal sector. In the same year, Vietnamese government also implemented a significant reform in its social security system to persuade informal employee to participate in the system. Despite these efforts, universal coverage for informal workers in both countries remains low. Using the China Statistics Yearbook and the Vietnam Statistics Yearbook, we compare China and Vietnam through a provincial-level quantitative and qualitative analysis to examine how social security reform affects the social security coverage within the informal sector. We find that the underlying systems produce some commonalities existing in both countries, yet their similar challenges were attributed to different unexpected causes, particularly due to the hukou system in China and the unsustainable nature of the formal social security system for informal workers in Vietnam. The significance of this study lies in deepening our understanding of the path-dependent nature of socialist institutional rigidity within market economies. Specifically, it demonstrates the challenges China and Vietnam face in formalizing capitalist labour relations stem not from inherent similarities, but rather from their divergent approaches to reforming their respective socialist institutional systems.