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China to prepare its economy for a ‘great demographic unknown’

A group of children in costume wait to perform at Beijing Capital International Airport in Beijing, on Friday. China’s population crept past 1.4 billion in 2019 for the first time, even as the birthrate continues to fall. (AP). Sketched by the Pan Pacific Agency.

HONG KONG, May 12, 2021, CNN. China is growing fast — but the workforce powering its economic rise is shrinking. Census data released Tuesday showed that China’s total population rose by 5.8% over the past decade — the slowest pace of growth since at least the 1960s, CNN reported.

It also showed the country’s labor force is getting smaller. The number of people aged between 15 and 59 dropped below 900 million to about 63% of the population — down some 7 percentage points from a decade earlier.

That could spell bad news for the world’s second-largest economy, as it draws ever closer to overtaking the United States.

Lin Yifu, a government adviser and former World Bank chief economist, predicted at a government forum in March that could happen as early as 2030 — if it maintains an annual growth rate of between 5% and 6% over the next decade.

An accelerated drop in the labor force could make that tough.

China’s labor force could shrink by about 5% over the next decade, according to calculations by Yue Su, an economist at the Economist Intelligence Unit in London. “The likely consequent drop in the labor force, which has been falling since 2017, will place a cap on China’s potential economic growth,” Yue said Tuesday. “The demographic dividend that propelled the country’s economic rise over recent decades is set to dissipate quickly.”

For context, with 13.5% of its people now aged 65 or above, China has as many elderly people as Japan in the early 1990s — the beginning of three lost decades of economic stagnation for that nation. But China’s current GDP per capita — a broad measure of a country’s standard of living — is just $10,504, compared to Japan’s $31,465 in 1992, according to World Bank data.

“The brutal fact is that China is aging rapidly,” said Larry Hu, chief China economist for Macquarie Group, in a research report on Tuesday. “A more brutal fact is that China is getting old before getting rich.”

Demographics is not China’s only challenge. The country’s post-coronavirus recovery plan has relied heavily on government support, and a slew of bankruptcies and loan defaults at state-run firms have strained debt markets.

There are also enormous political risks. Clashes over Hong Kong and alleged human rights abuses in China’s Xinjiang region have exacerbated tensions with the West, and threaten to hurt efforts to build global partnerships.

But Ning Jizhe, head of the statistics bureau, sees the aging population as an opportunity, not just a challenge, since there will be more demand for consumer goods and technology geared toward the elderly. He also suggested that “younger elderly” could continue to work — although suggestions to push back China’s relatively young retirement age have proved controversial.

Analysts at Citi agreed that there was opportunity in the grey dollar, but warned that caring for the elderly brings with it an escalating financial burden.

“In short,” the analysts wrote, “China is leaping into a great demographic unknown in the coming generation.”

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