The Chinese population census, released last May, revealed that China’s demographic situation is already quite worrying. Population growth over the previous decade is the slowest in Chinese history. The share of the population aged sixty years or over rose to nearly one-fifth of the total population. This means that the number of people aged sixty-five and over is likely to double over the next two decades as the workforce shrinks, making China the world’s largest “old society.” The Chinese government predicts that elderly Chinese will make up about a third of the population by 2050, plus children who have not entered their productive age.
Sounds a bit confusing indeed. The world’s most populous country, with 1.4 billion people, needs even more people to stay on the path of fast economic growth, especially to overtake the United States? The problem lies in the aging of the population, which causes the share of the productive population to shrink.
In other words, China’s economy is due to face a number of burdens from a rising number of elderly people who are less productive and will strain the nation’s healthcare system and pension fund. It is worth noting that China is still struggling to improve its health care system and pension funds, so that the non-productive population that continues to grow does not experience bad conditions.
New research from last February has predicted that China’s aging population will be the main reason that Beijing may fail to overtake the United States in 2050. According to Mark Williams, the director of Capital Economics, with these demographic facts, “China’s economy will likely never surpass America’s.”
In 2020 alone, the birth rate in China was down 20 percent compared to the previous decade, at only 12 million people. This is the lowest figure since 1961. In response, Chinese Premier Li Keqiang reminded Chinese leaders that the Chinese Communist Party must review its population policy, which has begun to burden the economy.
Previously, the Chinese population had been exploding, leading the Chinese government after Mao Zedong to set the one-child policy in late 1979. This policy was revised to two children per family in early 2016 after Xi Jinping came to power. And nowadays, even young couples are allowed to have three children.
Yet today’s young Chinese generation has the “996 syndrome.” They work from 9 am to 9 pm, six days a week. Young couples experience drastic lifestyle changes compared to their parents. On average, they choose to have only one child, and even then, the average age at which Chinese marry has gotten older—it is now approaching the age of thirty.
Xi Jinping and the Chinese Communist Party understand the problem very well and seem to have a reasonable solution: automation. China today is transforming into a high-tech powerhouse country. More than 60 percent of robotic manufacturing in the world is in China. Economically, technology usually provides more value to increase, or even multiply, productivity on the one hand while reducing the burden of rising labor costs on the other. Another result of automation is the massive urbanization that is occurring in China because of the attractiveness of industrialization in urban areas. As a result, labor costs have increased quite significantly.
But it should also be understood that first, not all production and service lines can be automated. In the era of high technology, automation policies have resulted in increasingly rigid job specialization with higher levels and qualifications of expertise. A workforce with such expertise is really needed. But is China capable of preparing one? China is still below the United States in the percent of its population with college degrees, around 19 percent, compared to the United States, which has more than 24 percent. In other words, automation must be backed up with appropriate human development policies, so that the remainder of the productive workforce can be maximally absorbed.
Second, automation does not necessarily create equality, as the Chinese Communist Party promises. It may even widen the gap. Look at how U.S. high-tech conglomerates are dominating the economic pie and exacerbating income inequality. In other words, China must be able to engineer various policies so that income is well distributed while improving the quality of managing its healthcare system and pension funds properly. Otherwise, China’s national income contour will be like the United States. If that happens, China, which is accustomed to communism, will react differently from American society.
In the United States, the Democratic Party will ascend the political throne if conditions for income distribution worsen. Then the Republican Party will replace it when a Democratic administration has taken too much of the budget portion for socio-economic projects, which causes the national economic movement to slow down due to various types of pathologies infecting businesses and investment. But in China, there is only one party—the Chinese Communist Party. If China’s economic performance actually makes inequality worse, perhaps what will happen is a revolution to get rid of the party, as happened in the Soviet Union in 1991. The spirit of Maoism can be revived, or the aspirations of a cultural revolution are raised by the public to overturn the capitalists.
Actually, China’s economic constraints are not without precedent. What is being experienced in China had already been experienced by Japan in the 1970-1990s. In the early 1990s, when Donald Trump first expressed his intention to become president, Japan was the target of his anger. “We have to fight Japan,” he said at the time. Trump was right, in those years imported goods from Japan flooded the United States and disrupted the American industrial order, ranging from cheaper cars to more attractive TVs.
The thinkers and intellectuals of that era simultaneously called out Japan. For example, Clyde Prestowitz Jr wrote in his 1988 book, Trading Places, “that because of the United States’ failure to respond to the Japanese challenge, the power of the US and the quality of American life would decline rapidly.” Then Pat Choate, in his book Agents of Influence (1990), warned of “the influence of corporations and Washington lobbyists in Japan’s favor, fearing the loss of business and revenue.” And William Holstein, in his book “The Japanese Power Game: What It Means for America (1990), wrote, “that Japan’s end game was to dominate the Americas and the Pacific Rim with its auto industry, electronics, supply chains, and even banking. Then Holstein also said, “US government and industry were failing to coordinate their response and that the US must pull together to counter the Japanese threat.”
The books also noted how Japanese companies began to penetrate the property business in the United States. But what happened next? The turning point was when Mitsubishi defaulted in 1995 after taking over Rockefeller Tower in 1989 for $ 1.4 billion, the largest transaction at the time. Then in the 2000s the Rockefeller Consortium and Goldman Sachs bought it back. It was then that the world realized that the Japanese economy had stopped growing and was cooling off. Its population was aging, its financial system was suffering from disease, which has spawned several “zombie banks,” and its industry was slowly experiencing a phase of diminishing returns.
Will China finally surpass the United States economically? Or is China slowly slowing down before becoming a rich country, thus failing to take off and get out of the middle-income trap? Or will China get rich and get old at the same time? Many economic intellectuals believe that China will experience the third option, which is to be rich and age at the same time. But the problem is that China will probably be like Japan, which plunged into a slowdown phase, failed to overtake the United States, but remained a rich and prosperous country. Yet there is still a long way to go. In terms of gross domestic product (GDP) based on purchasing power parity, China has already passed the U.S. economy. However, China’s per capita income is four times behind that of the United States. In other words, China has not yet reached the level that the Soviet Union had before its fall, where its per capita GDP was a third of America’s. Where China goes next is far from certain.
Ronny P. Sasmita is Senior Fellow for Indonesia Strategic and Economic Action Institution.