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China’s Demographic Timebomb

As China gets older its working age population is starting to fall, fast

09·01·2013

China’s Demographic Timebomb

As China gets older its working age population is starting to fall, fast

09·01·2013

China is getting rich fast, but it is getting older even faster and this is causing problems, big problems. I will bore you with a few facts and figures later (check out the infographic) but the crux of the matter is that China’s working age population peaked last year, three years earlier than anybody predicted. From here on in, every year the number of working people in China is getting smaller and the number of retired people is getting bigger, and this likely to continue for at least 20 years. Retired people are going to need cash and resources to live, and there are going to be less people creating the cash to fund it.

This has happened for a number of reasons, chiefly the one-child policy. And it not just ageing that is causing China problems either. Depending on which economists you believe (and let’s be honest, who believes any of them?) China has just passed or is about to pass the ‘Lewis Turning Point.’ Essentially, this means that modern industry is no longer going to be able to rely on an ultra cheap labor force from the countryside to sustain it. Unless the economy radically reforms, and these things take time in China, there’s going to be a huge squeeze on profit margins (particularly for industries exporting cheap goods) which will mean less money for the government coffers, at exactly the same time more money is needed to pay for the glut of pensioners. According to U.S. consultancy firm, Stratfor, last year there were 194 million elderly people in China, by 2025 this is set to hit 300 million. Things are going to get very expensive indeed.

china_demography_2010.one

However, there are a number of things that can be done to alleviate the potentially massive social problems this demographic timebomb is likely to cause. None of them look to be completely efficacious, but a combination of these factors may help.

One simple policy that was suggested by experts at Tsinghua University earlier this month, and one that looks relatively painless is to simply raise the retirement age. Currently men are able to retire at 60 and women at 50 or 55. Raising this to, say, 65 across the board would have the benefits of slowing down the number of retirees and locking in their considerable expertise for several more years. The original retirement ages were set down nearly 40 years ago when life expectancy was just under 70, now it is just over 75. It makes sense to change as society has changed.

china_demography_2025.two

However, such a move will cause its own set of problems. It will anger a set of senior and often powerful civil servants who are looking forward to imminent retirement, as opposed to an extra five years eating stodge from the, very much cracked, “Iron rice bowl” (铁饭碗 tiě fànwǎn). It also causes problems for graduates who are all ready suffering from record unemployment and underemployment. If people are not moving out of the labor pool, then there is less space at the bottom of the ladder for people to move up.

Another idea would be to finally strike the nail in the coffin of China’s controversial one-child policy. This, one would imagine, would see an instant upsurge in the number of babies and, in time, young people willing to work. Though many, claim this is a case of too little too late and the nature of Chinese society has changed so significantly that many Chinese families may not even take up the option of having extra children. As Stratfor say in their report on Chinese demographics:

“It is no longer clear that the one-child policy has any appreciable impact on population growth in China. China’s low fertility rate (1.4 children per mother, compared with an average of 1.7 in developed countries and 2.0 in the United States) is at least as much a reflection of urban couples’ struggles to cope with the rapidly rising cost of living and education in many Chinese cities as it is of draconian enforcement of the policy.”

Even if changing the policy were to reap major benefits it would take at least 20 years to have any noticeable effect on the working population, and by then it might be a little bit late. Whether you are a ‘Panda hugger’ thinking everything is going to be ok, or a ‘Dragon-slayer who thinks the end is nigh (yes, Policy Wonkers’ metaphors are dull), it’s abundantly clear China needs to move fast and whatever happens, someone, somewhere is going to lose out.