Census Shows China’s Aging Population, and More Predict Economic Doom

Government counting on a higher retirement age, continued urbanization and innovation to counter a shrinking population of working-age people.
Mark MelnicoeJun 10,2021,03:16

“An absolute disaster.” “A demographic time bomb.” China released population data this week from its 2020 census, and a continuing decline in births has many experts predicting doom for the country’s economic growth. In the absence of significant policy changes, they say, the Middle Kingdom faces a dramatic plunge in population that threatens its rapid advances in innovation, economic growth and national strength.

Why? Because it’s hard to grow business if you can’t hire enough workers, and a look at China’s population by age group spells it out. Births in China totaled 223 million during the 1980s, 210 million in the ‘90s and just 163 million the 00s. The working-age population has dropped nearly 7 percent since 2010. Meanwhile, people over 60 constitute 18.7 percent of the population, up from 13 percent in just 10 years. That figure is heading rapidly higher.

China faces the perhaps the most severe population problem in the world, in large part a reflection of economics. I’ve talked to numerous young friends in Shanghai who say they won’t have more than one child or don’t want any at all. Without exception, they cite the high cost of child-rearing.

According to the newly released census data, 12 million babies were born in 2020, down 18 percent from 2019 and down 33 percent from 2016 – the year China eased it’s “family planning” policy to allow couples to have two children. The national fertility rate fell to 1.3 children for each woman of childbearing age last year, the lowest since the founding of modern China in 1949 and far below the 2.1 needed to maintain a level population. Clearly, the new two-child policy isn’t working. That is leading to ominous forecasts.

Even if family planning is liberalized immediately, as long as births are not vigorously encouraged by policies, the number of births will continue to decline after a short rebound, and the population will age profoundly,” Liang Jianzhang, an economics professor at Peking University’s Guanghua School of Management, wrote in a Caixin article. “Excluding technological advancement, the scale of China’s economy will continue to shrink, lowering the economies of scale. Ultimately, China will lose its advantage of maintaining a comprehensive collection of all industries, see a fall in per capita income and a decline in national strength.”

If this bleak projection comes to pass, it will happen over many years. China’s economy remains healthy for now. That is reflected in the country’s stock market, which remains promising and where returns have been robust in certain sectors amid a drive for more innovation. For the first time, China now has companies such as Alibaba (NYSE: BABA) and Tencent (HK: 0700) that are global leaders.

China’s lower fertility rate is a natural outcome of its economic development. As countries’ economies become more advanced, their birth rates almost always fall due to education and people’s expanded career opportunities. China’s neighbors Japan and Korea have seen their birth rates fall to some of the lowest levels in the world. But China’s situation is more dire and it’s happening before the country has fully developed to join the club of rich nations. It needs to take action.

The central government, despite a lot of opposition, is moving to gradually raise the retirement age, which for four decades has stood at 60 for men and 55 for women – or 50 for blue-collar female workers. Part of the opposition stems from the fact that most young couples rely on their parents for child care. If these grandparents are forced to work longer, it complicates the arrangement. It could force couples to abandon having a child or a second child – counter to the government’s policy of encouraging more births.

Some of China’s other policies could bear fruit. One is the nation’s continuing urbanization, which has spurred the biggest mass movement of people in history. The percentage of urban residents rose to 64 percent, up 14 percentage points over the past decade alone. It was only in 2012 that the number of city dwellers exceeded the rural population for the first time.

The urbanization drive is sending hundreds of millions of people from poor villages into the richer cities. China’s “floating population” of migrant workers - those living in places other than their household registration area - rose to 375 million, up almost 70 percent from 2010. The government finally is taking steps to make life easier for them and their children.

People in Chinese cities earn about three times what the rural population earn. That’s mostly due to opportunity in the cities but education also plays a big role. The National Bureau of Statistics says that 218 million Chinese now have a university degree. That’s more than 15 percent of the population of 1.4 billion, up from 8.9 percent a decade earlier.

Urbanization and education will help to improve labor productivity, which should serve to blunt some of the negative impact on growth of China's aging, shrinking population, the Trivium research group said in a note this week.

Likewise, Dezan Shira and Associates, another China business consultancy, sees ways for China to overcome its population problem. It cites increasing foreign investment opportunities across an expanding number of sectors, as well as the use of technology to increase worker productivity. “Artificial intelligence will be another major factor altering ratios of worker/dependents on a global basis,” it said.

It’s undeniable that China has a serious demographic problem with its rapidly aging population. But it likely will be 20 years or more before we know how well the government copes and can keep its economic miracle going. By then, China will have easily surpassed the United States as the largest economy in the world.

Topics:demographics, population, workers, fertility, urbanization, retirement age