Will China grow old before it grows rich?

A few months ago, in a post entitled China’s rise is accelerating I argued that “China is likely to become the most powerful country in the world, sooner or later [and]…it’s starting to look like sooner.”  While I stand by that conclusion, I will readily admit it’s not a sure thing, and there are a number of factors that could slow or even reverse China’s rise.

Chief among them is what some experts have called China’s “number one economic problem… going forward”:  the aging of its population.  Very simply, as any country’s population gets older, fewer workers must support a larger number of retirees. 

In 1978, around the start of China’s economic rise, there were nine workers for each retiree.  Today, that number has slipped to five workers per retiree, and according to a recent Forbes article, by 2040 China will have “barely three workers for each dependent adult. Those three workers will have to produce enough for their own consumption, those of their other dependents, and… [for] retiree’s needs.” 

China’s initial wave of growth was largely based on cheap labor producing cheap products.  “Demographics were not the only contributor to China’s fabulous growth…” the Forbes article explained, “but they were a substantive part to be sure.”  Since then, wages in China have gone up and many of its manufacturing jobs have moved to India, Brazil, and other countries with lower labor costs.  

To sum up, according to a Time article entitled China’s aging population is a major threat to its future: “China, whose extraordinary economic heft has been built on labor-intensive manufacturing and which has no social safety net to protect the aged, is uniquely ill-prepared for the societal changes this gray wave will bring.” Or, as a Washington Post editorial a few weeks ago phrased it “The ambitions of China’s rulers may be undone by the baby bust.”

The continued aging of China’s population will also have more subtle negative effects, such as reducing innovation. “Research into patents and Nobel Prizes [has shown] that in all cultures and economic systems, the 30-40 age cohort provides the bulk of society’s inventiveness. In China, that age cohort is expected to shrink by 100 million over the next 20 years, from 43% of the workforce to 37%.”

Of course, China is not the only country facing problems associated with too many elderly retirees.  For example, according to Time, in Japan “more adult diapers are sold… than infant ones.”

In fact, “having an aging population is a common demographic problem in developed countries, where birthrates decline as a result of higher levels of income, healthcare, and education.” 

A study published in The Lancet last year predicted that “an accelerated decline in fertility rates means the global population could peak in 2064 at 9.7 billion and fall to 8.8 billion by century’s end… An important underlying reason behind the conclusions is the improvement in access to modern contraception and the education of girls and women, which the study said would ‘hasten declines in fertility and slow population growth.’” 

The economic effects will be much worse in China than elsewhere since it began “the aging process at an earlier stage of [economic] development… than most countries… and at a more accelerated pace.”

Put it all together, and the New York Times called this demographic trend a “looming crisis” that threatens the country’s position on the world stage.  A population that is growing older and living longer could not only slow consumer spending but also limit the military’s manpower.  It may even require China to build a huge social welfare state over the coming generation.

There are many reasons to believe that China’s population will continue to get older.  The first and foremost has been the increase in life expectancy.  In 1959, life expectancy in China was just 44; today it is 77, largely as a result of improved medical care.

A second reason is the “middle income trap,” a term introduced by the World Bank in 2006 to refer to developing economies which first grow rapidly, until wages rise to the point where a middle class emerges and has fewer babies.  In China, “urban couples, particularly those born after 1990, tend to value their independence and careers more than raising a family despite parental pressure to have children.  Surging living costs in big cities, where most Chinese now live, have also deterred couples from having children.”

Still another cause of this problem was self-induced.  According to Time, “The scale of the problem is partly due to the legacy of the one-child policy: history’s biggest social-engineering experiment… introduced in 1980 to reduce the number of hungry mouths to feed.”

Enforcement of the limit of one child per couple was harsh. “Corrupt and brutal family-planning officials demolished the homes of some who resisted. Women had their menstrual cycles recorded on blackboards, for all to see. As birth quotas bit, gender ratios became more skewed by infanticide and sex-selective abortions of girls.”

When it became clear that this policy was interfering with long-term economic growth, in 2016 China changed the law to allow two children per couple.  This didn’t work, so a few months ago China again increased the limit, this time to three children per married couple.  On Weibo – one of China’s largest social media platforms – this latest change “was met with cynicism and ridicule. [As] one user wrote, ‘Whether you change the policy to five children or eight children, [high] housing prices are still the best sterilization tool.’”

The same day it announced the new three child policy, the Politburo also “said it would reduce the costs of education, improve maternity care and insurance and provide other support to families on housing and taxes… [and that] they would gradually raise the country’s retirement age, which is currently 60 for men and 55 for women.”

Many experts are skeptical that these new policies will make much difference.

As the Forbes article summed it up, this is not to argue that “China will disappear as a major power or that its economy will cease growing. It does say, however, that contrary to most media commentary today, the country’s growth rate will slow appreciably going forward, as will its pace of development and innovation. China will begin to resemble Japan in crucial ways, except that Japan got rich before it aged, whereas China, still not rich, will age first.”

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