International analysts have expressed serious concern about the future growth of the world's second-largest economy after a decline in China's population for a second consecutive year. Once the world's most populous nation, China has now been overtaken by India last year. The UN. National data has shown that its population stood at 1.409 billion, down some 2.08m from the previous year. Comparatively, India's population stands at 1.425 billion.
The Chinese decrease is more than double the previous year's loss of 850,000 people. That had marked the country's first downturn in 60 years -- the result of decades of falling birth rates and rapid urbanisation. Beijing has observed that the birth rate is now down to 6.39 per 1,000 people -- the lowest on record. This is on par with some other advanced East Asian countries- Japan's birth rate at 6.3 and South Korea's at 4.9.
It may be noted that after decades of a controversial one-child policy in place from 1980-2015, China has spent the past years trying to slow its plunging childbirth rate with subsidies and other policies to encourage families. In 2021 it allowed couples to have up to three children. However, the changes appear to have borne little impact with young people citing deterrents like the cost of living in cities and career priorities for women. However, one analyst has noted that China still has "plenty of manpower" and "a lot of lead time" to manage the demographic challenge. Paul Cheung, Singapore's former chief statistician has observed in this regard that "they are not in a doomsday scenario right away".
It may be recalled that Kelly Ng on January 20, 2023 had highlighted in the BBC that demographic stress will be a drag on growth in what is currently the world's second-largest economy.
It may be recalled that China has been facing many difficulties over the last few years. They have had to overcome economic distresses by 2023, with the country experiencing several aftershocks after re-opening from a three-year Covid period. Last year, it also had to fight a widespread property crisis, falling consumer consumption and record youth joblessness.
This was reflected in recently published data which confirmed the struggles, showing the economy had grown at one of its slowest rates in more than three decades with GDP growing at 5.2 per cent to hit 126 trillion yuan (US Dollar17.6 trillion) in 2023. This marked the weakest performance since 1990-- excluding the pandemic years -- which saw a record 3 per cent GDP rate in 2022. Economic experts believe that the latest population data is likely to reinforce fears about China's economy which over the past decades has relied on its massive workforce as a key driver of its economy. The country is also facing increased pressure on its healthcare and pension systems with massive growth in its retiree population. That group is expected to increase 60 per cent to 400 million people by 2035-- larger than the entire population of the United States.
In any case, China's working-age population has been on a slump since 2012. Its age-dependency ratio, which is the ratio of children and retired people to the working age population, rose from 37.12 per cent in 2010 to 44.14 per cent in 2020.
Based on UN estimates, the number of Chinese aged between 15 and 64 will fall by more than 60 per cent this century. China's death rate has also been its highest in decades in 2023-- 7.87 deaths per 1,000 people up from the rate of 7.37 deaths in 2022. This was the highest since 1974 during the Cultural Revolution, Reuters reported. Many believe that a wave of Covid deaths after China opened up is believed to have contributed to the population decline in 2023. In any case, China's working-age population has been on a slump since 2012. Its age-dependency ratio, which is the ratio of children and retired people to the working age population, has risen from 37.12 per cent in 2010 to 44.14 per cent in 2020. Based on UN estimates, the number of Chinese aged between 15 and 64 will fall by more than 60 per cent this century.
However, Andrew Harris, deputy chief economist at Fathom Financial Consulting has observed that the country has a pool of cheap rural labour that could help fill manufacturing gaps in urban areas. He has also pointed out that there is still "significant slack" in the manufacturing and construction sectors, where according to Fathom estimates, roughly one third of the workers in the construction sector are underemployed, which means they are producing less than they potentially could. In this context he has also added that "the broader demographic story will not bite fully on China's growth until both of these sources of slack have been exhausted." However, Harris has also drawn attention to the fact that the major difference between China and countries like South Korea and Japan is that its demographic pressure is biting at much lower levels of income.
From another dimension Paul Cheung, Singapore's former chief statistician, has noted that China has "plenty of manpower" and "a lot of lead time to manage the demographic challenge. They are not in a doomsday scenario right away. He has also pointed to how countries like Japan and Singapore had managed to provide a safety net for their ageing citizenry while maintaining relative economic stability.
Nevertheless, not everyone appears to be so confident. This is being referred to as a 2019 report by the Chinese Academy of Social Sciences predicted that the country's main pension fund would be depleted by 2035, in part because of its shrinking workforce. Studies by US think-tank Pew Research has also shown that some seven in 10 people in China already felt its public health system was under strain in 2016. A graying population and the spiraling Covid crisis appear to have placed additional stresses on it.
It needs to be mentioned here that China's population decline could send ripple effects across the global economy. A shrinking workforce means rising labour costs, which could increase consumption and production costs. Recent reports have already shown China -- long dubbed the "factory of the world" -- losing manufacturing operations to other developing countries in Asia and South America.
Given how its recent attempts to raise fertility rates have met with limited success, China may have to look at other ways to sustain growth. This will involve making hard political decisions, said George Magnus, an independent economist and associate at the China Centre at Oxford University. In this context it has been observed that it should consider national legislation to raise retirement ages. The current retirement age for most men in China is 60, while the OECD average is 64.2. The number stands at 55 for female civil servants and 50 for female blue-collar workers. However, previous calls to raise the retirement age have sparked backlash in China, with older workers not wanting to delay access to their pensions.
Interestingly, China is already pursuing automation through robotics and artificial intelligence, but the impact on productivity is still unclear. The Chinese leadership, according to some analysts, might, at a point of time, consider that they can no longer rely on its demographic dividend to fuel its economy. Economists feel that this might not be a bad thing if it manages to seek growth from other sources such as productivity.
Samantha Chan in an article published on March 16, 2023 has referred to another interesting dimension that is spreading in China through an osmotic effect. A 2021 Survey carried out by China's Communist Youth League among young urban women in China of almost 3,000 people between the ages of 18 and 26, found that more than 40 per cent of young women living in cities did not plan to marry, compared to less than 25 per cent of men. This kind of thinking appears to be partly due to rising childcare costs and the ghosts of China's one-child policy and its denotations related to the economy, social environment and education.
Socio-economists have observed that China's working age population -- those between the ages of 16 and 59 -- currently stands at about 875 million. They account for a little more than 60 per cent of the country's people. However, this figure might reduce further. Analyst Yi has noted that "China's demographic structure in 2018 was similar to that of Japan's in 1992.and China's demographic structure]in 2040 will be similar to Japan's in 2020."
Interestingly, Louise Loo, a senior economist with Oxford Economics has drawn attention to the fact that "population ageing is not unique to China but the strain on China's pension system is a lot more acute". She has said that the number of retirees has already exceeded the number of contributors, leading to a reduction in contribution to the pension fund since 2014. This makes things slightly awkward. China's pension fund is administered at a provincial level and on a pay-as-you-work basis - that is, contributions from the workforce pay the retirees' pensions.
To overcome the emerging challenges, in 2022, China launched its first private pension scheme in 36 cities, allowing individuals to open retirement accounts at banks to buy pension products like mutual funds. However, according to Louise Loo it is still not clear if many Chinese people, who typically invest savings in more traditional avenues such as property, are turning instead to private pension funds. This is a problem which is also being noticed in Japan and South Korea-- both have a graying population and a shrinking workforce.
Analyst Yi's observation needs to be mentioned as part of the conclusion that "the labour force is the flour and the pension system is the skill of making bread. Without enough flour, it is impossible to make enough bread, even with the best bread-making skills."
Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.
muhammadzamir0@gmail.com