The May 2021 release of China’s 2020 census results has brought a wave of global angst as to the threat of population ageing in China. In echo of mid-1990s Japan, the fear is that China hence is destined to stagnate – but in China’s case before having reached the economic frontier.
A more optimistic scenario, however, has been in the planning for nearly four decades. If it works, it may offer China’s long-term power projection a double benefit. First, the political economy reform impetus enables China’s productivity per worker to rise, hence keeping total output at least stable even as the working-age population share falls. Second, the long-run economic demography policy agenda that China has been broadly implementing for more than three decades may form a useful reference for other countries, developing countries especially.
On the first point, within China’s recently released 14th Five-Year Plan (14FYP) the largest number of sections are dedicated to strengthening China’s domestic socioeconomic foundations and supporting technology and innovation. This plays to the fact that China needs not only to push into new economic frontiers, but also to support those on the frontline of that task – those in their younger working prime, on average (aged 25-45).
What might support those priority agendas is another key area of the 14FYP – digitization. The word digital is mentioned 80 times in the 14FYP as against four in the 13FYP. Embodied within that new emphasis is a shift from building mechanical digital foundations to promoting the application of digital and smart solutions for the economy. This is intended not only to help elevate labour productivity, but also and for example to inform and empower policy makers to better target their interventions.
On the second point, after China implemented an aggressively restrictive family planning policy from 1980, effort was made to understand all of the possible risks and opportunities that lay ahead as a result. Not only did this compress China’s demographic dividend window, for example, but it gave demographic forecasts relative certainty as to when China’s population would start ageing. Ominously, that would happen when China was at best a middle-income country – there was so simply no feasible growth rate from the starting point of low-income 1980s China that would enable it to get rich before old.
In having uniquely imposed a One Child Policy China has long figured that ‘getting old before rich’ was its equivalently unique predicament. In fact, and for reasons related to education and health gains in poorer countries in particular, many countries are now getting old faster than they are getting rich. In China’s case, however, since the government saw itself as responsible for this pattern of economic demography timing and was also aware that regional economies such as Japan, Taiwan and Singapore had all got rich before getting old, it took this economic demography destiny seriously. All countries should do the same.
In sum, the agenda had two parts. The first was to emphatically maximise the potential of the low-wage demographic dividend – a case of the Lewis Model on steroids almost. The second was to concurrently prepare for the period of intensive population ageing. Steps here included steady development of ageing institutions, such as pensions and old-age healthcare and rights. It is noted also that pensions and healthcare systems are neither perfect nor in most cases generous. Related promises have always been kept to a bare minimum so as to ensure these would be sustainable, though this has come at the expense of a healthier role for consumption.
It is not given that what I call China’s long run “economic demography transition” strategy will be able to sustain China’s economy and people through this period of accelerated ageing. Some argue, for example, that China’s education levels have not reached the levels of countries that successfully entered the high-income group, exaggerating China’s risk of getting stuck in the middle-income trap. Directly, China has an increasingly evolved policy of actively responding to population ageing. There are, however, a multitude of domestic and international geopolitical challenges to surmount along the way. Nonetheless, it remains a possible and optimistic scenario.
Success for China, even if as imperfect as the recent journey to the present, would enable China to sustain a rising role in the global economy. Where other countries are positioned to learn from China’s economy demography transition approach to national development, this may even help engineer greater soft power also. It awaits to be seen how well China’s policy makers can straddle their many upcoming challenges.
According to the recent government census, China’s population has still been on the rise, although the speed slows down marginally. So, there should be little to be worried about. However, if we scrutinise the published data, things are far more serious.
Firstly, of the four moving parts of China’s demographic machine, the population’s medium age increases faster than other parameters. It means that disproportionately the size of child-bearing group (conventionally women aged from 15 to 49) declines faster than China’s fertility rate by one percentage point per annum since the year 2000. Secondly, the same increase in the population’s medium age speeds up China’s death rate which is three times the rate of fertility rate. Thirdly, as a result, China’s population growth speed slows down -3.6% year by year for 20 years.
On the face value, China’s 2021 census data tell us that the country’s population still grows strongly, although China’s statistical trend of 2000-2020 clearly shows that China’s population growth is either stalling or shrinking. But why should this become a problem for the communist state to make a drastic sharp U-turn and abandon the well-established and well-policed ‘one child policy’?
Traditionally, Imperial China (220 BC – 1911 AD) did indeed see the size of population under its rule as the representation of national power and wealth when China’s territory and supply of farmland were both highly elastic; and more people meant more farming; and more farming meant more territory and more taxes. This ‘population fetish’ is brain dead, as China has been urbanising fast and government extracts less revenue from agriculture today. So, the old physiocratic mentality cannot explain China’s current U-turn. What seems more plausible is that the CCP leadership wishes to maintain (1) China’s position in the global production chain, and (2) China’s internal market size.
Since Deng Xiaoping’s opening-up reforms (1980) in general and since China’s WTO membership (2001) in particular, China has been transformed from rural autarky to what is now called ‘product-rich and export economy’. Thus, any brake on the supply of fresh blood of new workers for China’s assembly-line economy jeopardises China’s global position. Moreover, with the ongoing trade disputes with G7 economies, China may be forced to go by itself, known as ‘internal circulation of the economy’ (nei xunhuan). If so, it is vital for China’s domestic consumers to keep up with the country’s gigantic output capacity.
However, the real challenge for the communist state is whether the policy U-turn alone is able to deliver the desirable results for China. The answer is not as easy as one may think.
First of all, as China’s population is ageing fast, to maintain the country’s population size alone means a greater pressure on child-bearing women of the 15-49 age group to produce disproportionately more babies than their mothers and grandmothers. This is the physical challenge.
Secondly, and socially, as China has departed from a low level urbanisation rate of 15-17% under Mao’s rule to currently circa 60%, China’s age-old rurally based extensive family system has been uprooted and replaced by urban nuclear families. As a result, child bearing and child care are highly personalised which means inevitable sacrifice of mothers’ careers and incomes in a ‘zero-sum’ game.
Thirdly, and financially, modern housing and modern education for the younger generation can be a huge burden. In addition, China’s low-wage-for-export model dictates only 20% of the country’s total GDP to be ear-marked as workers’ wages. Finally, urban jobs are increasingly hard to get by due to the ongoing foreign trade issues. These are all private costs for having more children. If we factor all three – low wages, high housing prices and unemployment perspectives – into our equation, it will take a miracle for China’s birth rate to multiply just because of the government U-turn call.
China’s way out can only be aggressive reductions in private costs for having children, which means (1) much higher minimal wages, (2) universal government housing, and (3) generous child care subsidies. All these definitely need more reforms and structural change in the economy, something that we cannot however bet on for the near future.
China’s population has been big news recently. In early May, the Census was (finally) released and revealed that the population was growing at a slow pace and ageing very rapidly. Some commentators seemed to present this as an existential crisis for China. That it was on the brink of a demographic collapse (despite having added more than 70 million people in the past decade). It was ‘getting old before it gets rich’ – and hence its future plans would be completely derailed.
Not long after, another announcement came from the National Bureau of Statistics about the number of ‘excess males’. This was then met with the usual narrative that this would be a tremendous security threat for not only China, but also for surrounding countries who would be prey to human trafficking.
A few weeks later, the three-child policy was announced. Cue the (naive) notion that this would be the ‘demographic lifesaver’ to the perceived ‘crisis’ – and then the response that this would never be the case. The three-child policy will enable many people to have the number of children they desire; but, net of other major reorientations towards supporting families, it is unlikely to make any major impact on the demographic structure of China.
None of these demographic figures are a surprise to China. In fact, this recognition of the changing demographic paradigm has been part of policy development for years. Indeed, there is a clear policy strategy to pivot from the ‘in-built advantages of the era of ‘demographic dividend’ towards the more challenging, but equally plausible, yields from the ‘talent dividend’. The nature of Chinese policymaking – i.e. the ability to develop and deliver long-term, holistic plans – is well suited to meeting this challenge.
The 14th Five-year Plan clearly sets out such a comprehensive approach to dealing with the shifting population paradigm – encompassing developing health, education, elder care, poverty alleviation; as well as supporting families. Finally, China can ‘learn from the mistakes’ of the countries which have been through this transition before it. It can build institutions which will be more resilient to such population change; but also ones which more accurately reflect the changing attitudes in China, for example towards a greater social security system. As far as ‘excess males’ are concerned – well, I think they will continue to do what they have been doing. They will move to urban centres and work.
This is not to say, however, that urgent challenges do not exist. Perhaps the most pressing is the reform of the pension system. CASS has estimated, for example, that the urban pension fund will become insolvent by the mid-2030s. Raising the pension age is a priority and it will be very unpopular. But, net of other changes, it is not going to be enough. A paradigmatic shift regarding income protection in older age is really needed. There are also pressing issues relating to ‘excess males’, including how, in their older age, such men will be able to look after themselves in the absence of spousal and/or child support.
As the world’s most populous country, any story relating to its population is likely to be a big issue. However, the level of much of the discourse is overly simplistic and two-dimensional at best. Beyond this, though, it is hard to avoid the conclusion that a certain amount of schadenfreude may have been felt by some commentators who were happy to see these perceived travails presented to the world. Why else, perhaps, were some of the more positive aspects of Census largely overlooked – especially relating to the decrease in the sex ratio at birth, and the dramatic improvements in educational attainment, especially at the university level?
This article gives the views of the authors, and not the position of the China Foresight Forum, LSE IDEAS, nor The London School of Economics and Political Science.