Population Decline Eats at China’s Economic Recovery

Published on Author shue

Jan 20, 2013 11:01 AM ET

Following 4th Quarter growth numbers for the Chinese economy, economic expansion in 2012 was recorded at 7.8%, the weakest expansion rate since 1999. Though for the past twenty years, China has recorded an average annual expansion rate of over 10%, with its highest growth occurring in 2007 at 14.2%, the slowing rate of economic growth reveals potential difficulties for continued economic recovery in the future. One key element behind the decline is the shrinking Chinese labor force. In 1979, the government instituted a policy that restricted families to only one child. The consequences of the one-child policy are now being realized; in the last year, there was a decline of 3.45 million in the labor force. Furthermore, the United Nations forecasts that from 2015-2025, there will be a population decline of 24 million in the 15-59 age demographic. As a result, the Chinese government will be facing increasingly lower rates of expansion – Ma Jiantang, head of China’s National Bureau of Statistics, estimates that the country’s potential economic growth will slow to 6% by 2020. While “rural-to-urban migration, urbanization and industrialization” will continue to contribute to China’s economic expansion, the labor market is an important determinant of the rate of that growth. As the new government under incoming premier Li Keqiang looks toward China’s future economic health, there is a possibility for relaxation of the one-child policy.

Source: http://www.bloomberg.com/news/2013-01-18/china-labor-squeeze-caps-rebound-as-bofa-sees-6-growth-by-2020.html

4 Responses to Population Decline Eats at China’s Economic Recovery

  1. I find this topic interesting because it is a clash between government policy and labor forces. This restrictive policy of limiting families to one child will lead to a major drop in the labor force as the people born during this period try and replace the workers born before. A major issue with this aging population is the distribution of retirement benefits. With this aging population, there could be an insufficient labor force to support the retirees. Another thing that impacts this is the gains in medicine, diet, and technology. These benefits have led to a better quality of life and also a longer life expectancy. Although it is good to have a better quality of living and higher life expectancies, China will face trouble dealing with the economic impact of an aging population.

  2. Two things that are important to pay attention to are how much benefits do the retirees receive and how much do they expect from their government. China’s social safety nets are underfunded and not ready to sustain a rapidly aging population. As pressure mounts on the younger generations to support the elderly, there is a potential for criticism of the healthcare or welfare system either from the elderly or from the younger generation, working for a future that is getting dimmer day by day. This could be more of potential political issue than an economic issue if things go badly.

    • See the World Bank study “China 2030” available online (468 pages), among many other sources, for details and for progress to date.

  3. Economic growth may be a function of population growth, but in the case of China, I think what matters more is productivity of labor, rather than quantity of labor, simply because cities are already too packed to accommodate more people and pollution is already quite severe. So in my opinion, in order to sustain economic growth, a better approach is to invest heavily in education and to boost the productivity of labor. The result may not be instant, but would make China a much better state in the future.