A few months ago, the Chinese government announced that it would ease its policy of allowing families to have only one child. The main reason for this policy change is population aging. According to the United Nations, about 8.5% of the current population is over 65, which will rise to 23.9% by 2050. Concerned with its economy and the problem for pensions, the government hopes that the change can boost the slowing growth rate and promote the long-term balanced development of the population in China.
As I argued in my previous post, this change also points out the problem of the decline in workforce. The population of working age shrank by 2.44 million in 2013 and will keep on falling. The country’s urban workforce, producing most of country’s output, is a crucial factor that will determine the long run direction of China’s economy. However, the fact that the population of workforce is declining seems to be a bad sign for the future.
Ding, a China economist at Citi, argues that the decline in the ratio of the working-age population to the dependent part of the population has been contributing to China’s amazing performance. However, he now argues that the working age population has reached its peak and the problem of population aging will reduce China’s growth potential. Although GDP has been rising, the pace of the growth is not much slower and lower that the past.
With the change of the one child policy, economists predict that the total fertility rate will rise and bring about 10 million additional birth in the next few years. Let’s hope that this will work and bring the growth back.