Tag Archives: census

China Has To Get Rich Before It Gets Old

REPORTS THAT CHINA’S population is in decline have proved premature, but growth has slowed further.

The newly released 2020 census shows the population growth rate averaging 0.53% over the past ten years, down from 0.57% in 2000-2010 and the slowest since 1953. The population is counted at 1.41 billion.

That is still 72 million more than captured by the previous census. The increase alone would be sufficient to rank as the 20th largest country by population, with more people than France or the United Kingdom.

Like many countries, China saw a drop-off in births after the Covid-19 pandemic struck. Some 12 million babies were born last year, compared to 18 million in 2016, after the one-child policy was ended. The uptick in fertility this caused lasted barely a year.

Fertility has been on a long term decline since the late 1970s; initially planned to check population growth with the one-child policy introduced in 1979 but more recently due to economic growth. Most industrialising countries see lower fertility rates as they move up the economic development ladder.

China’s social and economic consequences will be the same as those of other countries where the demographic dividend that propelled growth turned into a demographic tax. The population aged over 65 rose to 13.5% of the total population, up from the 8.9% recorded by the 2010 census.

Growing numbers of elderly require more economic resources to be devoted to providing services for them such as health and social care. These have to be paid for by a relatively smaller cohort of those of working age. The working-age population has slumped to 63.4% from more than 70% a decade ago,

The smaller labour pool, estimated to have shrunk by 40 million people between the two censuses, will act as a drag on overall growth unless productivity can be sustained by better use of non-labour factors of production — which is just the economists’ way of saying the economy has to move up the development value chain, as it is doing.

As we explained it after the previous census:

Working population is a proxy for production, and when it grows faster than the total population (a proxy for consumption), as it has for the past three decades, the difference becomes exports. Some time over the next decade that trend will reverse and the reversal intensify over the subsequent three decades reaching its peak in 2050. The consequent demographic bias will work through to the trade account long before then.

That will drive the transformation of the economy towards being more led by domestic demand. The supply of surplus labour available to low-cost export manufacturers will dry up. Manufacturers will move up the value chain, and a domestic market for products and services for the elderly will expand domestic demand, helping to run up domestic consumption and down domestic savings. The era of manufacturing in China predominantly for export comes to a close, replaced by an era of manufacturing and services provision in China for Chinese consumers.

Which is pretty much how it is playing out. It is also what, with the appropriate allowances for the geopolitical context, the new five-year plan is intended to sustain.

Beijing still has policy decisions to make about how it will deal with future labour shortages. The least likely way is immigration. More possible is that it will scrap the two-child policy at some point. More immediately, it will likely raise the retirement age.
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Another consequence of the demographic tax is that the growth in per-capita income and living standards are at risk of slowing. Regional neighbours such as Japan, South Korea and Singapore stand in testament that that is not inevitable regardless of ageing populations and declining fertility, even population shrinkage.

However, in China’s case, it will require politically deft handling. The legitimacy of one-party rule turns on delivering a steadily improving quality of life. The Party still needs China to get rich before it gets old.

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When China’s Demographic Dividend Becomes A Demographic Tax

Much of the follow-up attention given to the census results published this week has concentrated on the implications for China’s one-child policy. This Bystander is more struck by the long-term economic impact of the key demographic trends–low birth rates, a greying of the population and an unbalanced sex ratio (15% of young Chinese men won’t be able to find a partner among their fellow citizens in 20 years time).

These will, we believe, likely combine to make China a deficit country within two decades. Working population is a proxy for production, and when it grows faster than the total population (a proxy for consumption), as it has for the past three decades, the difference becomes exports. Some time over the next decade that trend will reverse and the reversal intensify over the subsequent three decades reaching its peak in 2050. The consequent demographic bias will work through to the trade account long before then.

For now, China’s demographic dividend has brought it more than just merchandise trade surpluses. Add on dramatically rising productivity from economic reform to the country’s working population growing much faster than its total population and the inevitable consequence has been a sharp improvement in per-capita income and living standards. The peak in the workforce forecast for sometime in the next decade will be accompanied by an explosive growth in the number of over-65s. China’s working population will begin to grow more slowly than its total population. The demographic dividend will become a demographic tax. As China is getting old really fast, it will become an increasingly heavy tax relatively quickly.

That will drive the transformation of the economy towards being more led by domestic demand. The supply of surplus labor available to low-cost export manufacturers will dry up. Manufacturers will move up the value chain, and a domestic market for products and services for the elderly will expand domestic demand, helping to run up domestic consumption and down domestic savings. The era of manufacturing in China predominantly for export comes to a close, replaced by an era of manufacturing and services provision in China for Chinese consumers.

How this all turns out in detail will depend on other factors, such as  changes in worker productivity, savings rates, institutional reform, whether monocultural China proves open enough to deal with future labor shortages through immigration, and, yes, what happens with the one-child policy. But today’s fast economic growth and huge export-driven current-account surpluses will by then be but a distant memory.

Footnote: Certainly the numbers can be used to argue the one-child policy policy should be scrapped. Wang Feng, Director of the Brookings-Tsinghua Center in Beijing, does just that in a commentary in Caixin.

To put the growth of the population in some perspective, since the previous census in 2000, China’s population has grown by 74 million to 1.34 billion. The increase alone would be sufficient to rank as one of the 20 largest countries in the world by population, with about the same number of people as Turkey or Iran. Over the same decade India’s population increased by 181 million. And while we are making such comparisons, on present demographic trends, by 2050, silver China, the nation of Chinese over 65 years old, will constitute a larger nation than the U.S. today.

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