China’s ageing population has long been considered the economy’s number one long-term headwind.
The ‘One Child Policy’ implemented in the 1970s and abolished in 2016 was credited with preventing some 400 million births between 1979 to 2010.
The policy initially created a demographic structure that was ideal for economic growth, since China had a large number of workers supporting a few number of dependents (both young and old).
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However, as the decades have passed, and these workers have grown old and retired, China is suddenly facing a rapidly ageing demographic structure that will weigh heavily on the nation’s growth and development.
Previous projections from the United Nations (UN) forecast that the number of working aged people to dependents in China would 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:
Thus, China’s demographic structure was predicted by the UN to emulate Japan’s thirty years prior (see below chart). The only difference being that Japan was already a ‘rich’ developed nation when it entered its ageing ‘bust’.
China’s population appears to be ageing faster than projected, with the government expected to record the nation’s first population decline since the famines 60 years ago when Beijing releases its official census figures in coming weeks. This would mean China’s population would have peaked at just under 1.4 billion a decade earlier than projected.
Analysts have described the situation as an “intensifying demographic crisis” suggesting “China’s population was entering a slide almost impossible to reverse, with profound economic implications”.
As a response, Beijing is expected to announce that it will gradually delay the retirement age – currently 60 for men and between 50 and 55 for women – to combat the economic effects of rapid aging. And workers aren’t happy:
The workforce is shrinking as the number of pensioners soars. It also restricts consumer spending. Smartphone sales declined by 20 per cent last year, and fewer new cars were bought…
China’s economic miracle has been built on the back of a seemingly endless supply of affordable labour…
[But] its population is shrinking, its citizens are growing older and the workforce that once came with few demands now wants higher pay and more benefits. And, despite Beijing’s best attempts to persuade couples to have more children, fewer are being born.
Interestingly, Beijing itself abandoned a previous attempt to raise retirement ages in 2015 after a similar outcry from workers. Many Chinese are concerned that lifting the retirement age would increase labour supply and competition for jobs.
From a policy perspective, lifting China’s retirement age makes sense. Its retirement age is among the lowest in the world and was established in the 1950s when the average Chinese resident was expected to only live until their early-40s.
Since then, China has modernised and its life expectancy has reached nearly 77 years – similar to developed nations.
Ideally, the retirement policy change would be accompanied by social security reforms that provide a safety net to displaced workers, as well as childcare. This would alleviate anxiety about job security, encourage child-rearing and help to lift domestic demand.
Regardless, lifting the retirement age is only a stop-gap measure to alleviate China’s rapidly ageing population. It is also debateable whether China can escape the “middle-income trap” since, unlike Japan, the nation will very likely ‘grow old’ before it ‘gets rich’.