China also faces difficult fiscal decisions. Currently, it devotes a large share of government finances to enhancing Chinese national power and influence through double-digit spending increases for its military, the People’s Liberation Army (PLA), and its paramilitary, the People’s Armed Police (PAP). Although the economic and social problems emanating from the country’s aging crisis will not be pressing for at least a decade, major decisions affecting the country’s ability to meet that crisis will need to be made by the next generation of leaders. Whatever decisions are made, the impact on the CCP’s fiscal and other commitments will be profound.
For example, the average sixty-five-year-old in urban China currently depends on the state for around 60 percent of his income, with about 27 percent coming from family transfers and the rest from labor income. In rural China, home for more than half of those sixty-five years and over, the state only provides about 5 percent of their income, with 45 percent coming from labor and 50 percent from family transfers. As retirees approach seventy years and over in both urban and rural China, the share of income from labor declines steeply as they become physically less able to work. Yet, the state picks up a declining share of the income needs in both urban and rural China, with family transfers and savings making up the difference. The reality is that the state will need to increase significantly its burden of providing income for retirees (especially in rural China) as the population ages and the capacity of children to bear the financial burden of their aging parents is strained.
China will also have to raise welfare spending appreciably to avoid social catastrophe. Currently, state and local governments spend around $96 billion on public health, including insurance programs, an increase from about $30 billion in 2007. Even so, more than half of all medical costs are individually borne by citizens in urban areas; in rural settings it is more than 75 percent. In a 2011 budget of around $887 billion, at least $205 billion was spent on the PLA and PAP. The true figure for the latter was probably closer to $300 billion. As China ages, an increasing amount of resources presently devoted to enhancing national power and prestige will need to be diverted toward improving the lot of its own people.
China’s demographic and economic challenges can be seen in an intriguing statistical projection comparing China with the United States in one significant area. In 2025, China’s population will be about 3.2 times that of the United States. By 2050, it is projected to fall to only about 2.2 times the size of the U.S. population. This profound population decline, in real terms and in relation to other great powers, confronts China with serious economic, political, cultural and social threats. The question is whether the country can successfully counter those threats and fulfill its current ambitions for economic growth, social stability, and expanding regional and global influence. The odds may not be great that China will manage to remain on its current course and dominate what many analysts see as the coming Asian century.
John Lee is the Michael Hintze fellow and an adjunct associate professor at the Centre for International Security Studies in Sydney University and a nonresident scholar at the Hudson Institute.
Image: Flickr/Garry Knight. CC BY-SA 2.0.