I have noted previously how China’s economy will soon face still headwinds from an ageing population (see here, here, here, and here).
Essentially, China’s ageing problem stems from its ‘one child policy’, which was brought into effect in the early-1970s and is credited with preventing around 400 million births from 1979 to 2010. This policy initially produced a population pyramid optimal to economic growth – that is, where the largest segments of the population were neither young nor old, but in the middle (i.e. working age).
However, the demographic blessing provided by the one child policy will soon turn into a curse, with the United Nations forecasting that the number of working aged people to dependents is set to almost halve over the 50 years to 2065, from a peak of 1.9 workers to dependents in 2015 to only 1.0 by 2065 (see charts below).
Now it appears that change is afoot, with China’s central government reportedly looking to abandon the One Child Policy in a bid to overcome the coming demographic storm. From The Telegraph:
The official news agency Xinhua reported that the Family Planning Commission is studying proposals to lift the ban on a second child…
Premier Li Keqiang clearly views the policy an anachronism at a time when China is running out of workers, and faces a demographic time-bomb. There are currently five workers for every pensioner. This ratio will fall to two by 2035…
The shift in policy may come too late to avert an ageing shock. The workforce shrank by 3m last year, an inflection point that has come sooner than expected…
The International Monetary Fund said the working age population will soon go into “precipitous decline”. The “reserve army” of rural poor looking for work peaked in 2010 at around 150m. This surplus will disappear soon after 2020. The IMF said there will be a labour shortage of almost 140m workers by the early 2030s with “far-reaching implications”…
China is unique in growing old before it is rich…
The implications of easing the One Child Policy on China’s economy are interesting. The reform would be positive in the very long-term, since it would help to ease labour shortages and spread the costs of a rapidly ageing population.
However, the implications over the short to medium-term are likely to be negative, as China’s shrinking working aged population would be required to support both a growing number of elderly citizens as well as more children, thus worsening China’s dependency ratio.
China’s demographic horse has well as truly bolted and belated attempts to increase the birth rate will not avert the coming ageing headwinds, at least over the short to medium-term.
