China’s Economic Base Is Dwindling

February 25, 2023 Topic: China Region: China Tags: ChinaXi JinpingEconomicsDemographicsOne Child Policy

China’s Economic Base Is Dwindling

There is little Beijing can do to offset the economic effects of changing demographics.


When Beijing announced recently that China’s population shrank, media outlets rightly gave the news attention. The coverage widely speculated that a shrinking population might somehow threaten China’s ambition to become the world’s dominant economy. Though most of these stories lacked clarity on whys and wherefores, they were nonetheless on the mark. When demographic trends are considered in detail—those whys and wherefores—Chinese demographics rises to become the single biggest economic event in decades, one that will significantly retard the pace of China’s development. The once-dominant perception of China as an irresistible economic juggernaut will have to change.

The figures recently released by China’s official statistics agency are striking enough on the surface. They show a drop in the nation’s population by some 850,000 since the last census. Working from these figures, United Nations (UN) demographers foresee future population declines, from 1.4 billion people presently to 1.3 billion in 2050, to 800 million or so by the end of the century. India will surpass China as the world’s most populous nation in less than a decade. And there is little China can do to stop the trend. More significantly, there is also little that Beijing can do to mitigate the trend’s retarding effects on the nation’s economic prospects.


The crucial economic factor in this demographic picture is less the gross population trend and more the acute shortage of working-age people facing China. Thanks to Beijing’s decades-long imposition of a one-child policy on Chinese families—for the last forty-five years, until recently—the nation now faces an acute shortage of young workers to replace the huge generation that is now retiring. The numbers of those of working age—by convention, between fifteen and sixty-four years old—have in fact hardly grown at all since 2010. But the older population of retirement age has grown a whopping 53 percent, increasing from 9 percent of the total population in 2010 to 13 percent at last measure. There are, as a consequence, barely 3.5 percent of working-age people today available to support each retiree, down from about 6.5 percent in 2000 and 5.5 percent in 2010. And that figure is expected to fall below 2.3 percent by 2030 and even lower in the years following. 

To grasp the economic significance of this situation, consider the burden on three workers. They must support themselves, their personal dependents, and a third of everything each retiree needs. No three workers anywhere, at least on average, are productive enough to shoulder this need. The economic strain will be much greater than what the raw numbers imply because the large aging population will necessarily siphon off workers from everyday production—exports, machinery, consumer items—to the medical and other care services needed by the elderly. This increasingly acute shortage of working hands and minds will deprive China of the surplus output and wealth essential to make the investments that this, or any economy, needs to develop—especially the grand projects for which China has become famous and which have so contributed to the country’s former and impressive pace of growth. 

What is more damaging is that these demographics will have significant and adverse financial implications as well. The pension needs of these retirees will force considerable borrowing on local governments as well as Beijing. China already carries a more considerable debt burden than most countries, including even the United States. At last measure, all debt—public and private—amounted to the equivalent of about $52 trillion, verging on three times the size of the economy. To be sure, Washington carries a larger debt burden than Beijing does, but that is because Beijing offloads borrowing needs—to support infrastructure spending for instance—onto local governments. Pension demands will increase this burden further still, and unavoidably crowd out the growth-fostering projects that in the past have done so much for China’s development.

There is little Beijing can do to offset these ill effects. A few years ago, the authorities finally awakened to the potential economic damage of the one-child policy. They rescinded the law and allowed larger families. But even if Chinese people had immediately taken advantage of that more liberal environment, it would take fifteen to twenty years before the change could have an effect on the relative size of the country’s working-age population. As it is, the nation’s fertility rate has not risen in response to the new law. Nor is China likely to see a wave of talented immigrants to enlarge the ranks of the working aged. On the contrary, China regularly experiences more out- than in-migration.

The only other avenue open for relief lies in increasing worker productivity. To this end, Beijing has emphasized the development and adoption of artificial intelligence (AI) and robotics. Indeed, China has become a world leader in these areas. No doubt in time these trends will substitute algorithms, computers, and machinery for labor and make the country’s relatively limited working population more productive than it is today. AI and robotics can also help by limiting the need for physical labor and thereby enabling Chinese to work at older ages than in the past. But these things can only go so far, not the least because their development requires heavy investment expenditures that China, with its working population already facing impossible demands, will have difficulty making. 

China’s pace of growth has already slowed markedly. Most sources estimate that the real economy expanded by only 2 percent last year. Covid lockdowns have rightly taken most of the blame for this radical shortfall from that economy’s historic pace of expansion. The economy’s reopening this year will likely produce a significant growth fillip. But behind such transitory gyrations, the ill effects of the country’s demographic reality will redouble. To be sure, China will maintain a significant economy even in the face of this reality, but neither its absolute size nor its pace of advance will come up to the once-popular outlook for Chinese economic dominance amid a powerful growth momentum.

Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest books are Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live and Bite-Sized Investing.

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