Dangerous Demographics: China's Population Problem Will Eclipse Its Ambitions

September 16, 2019 Topic: Security Region: Americas Tags: ChinaPopulationStrategyXi JinpingNational Security

Dangerous Demographics: China's Population Problem Will Eclipse Its Ambitions

If demographics are destiny, then China is facing its biggest challenge in decades with no easy long-term solution in sight.

China’s seemingly inexorable rise has hit a roadblock: demographics. And despite desperate efforts to reverse the effects of the Communist Party’s one-child policy, experts warn it may be too late to prevent lasting damage.

Government researchers have predicted that the world’s largest population will peak at 1.4 billion people in 2029. However, it will then experience an “unstoppable” decline that could see it drop to 1.36 billion by 2050, reducing the workforce by as much as 200 million.

Should fertility rates remain unchanged, then China could even shrink to 1.17 billion people by 2065, according to the China Academy of Social Sciences.

“From a theoretical point of view, the long-term population decline, especially when it is accompanied by a continuously aging population, is bound to cause very unfavorable social and economic consequences,” the report said.

Introduced to slow population growth, China’s one-child policy that included heavy fines, forced abortions and sterilizations proved far too successful, cutting the birth rate per family from 2.9 children in 1979 to 1.6 in 1995.

In 2016, the limit was raised to two children, but births declined again after a brief uptick. Last year, the number of births dropped to 15.2 million, with some cities and provinces reporting decreases as large as 35 percent.

China’s fertility rate has now officially dropped to 1.6 children per woman, which is below the considered “replacement rate” of 2.1 children, although analysts have questioned whether the real rate could be as low as 1.18. Even a rate of 1.3 would see China’s population more than halve in just under eighty years.

Another legacy of the one-child policy has been a lack of women. Thanks to a preference for male heirs and selective abortions, China now has thirty-four million more men than women and by 2020 could have twenty-four million single men of marrying age unable to find wives.

This situation could get even worse, with women between the ages of twenty-two and thirty-one expected to decline by 40 percent between 2015 and 2025.

Recently, more developed areas such as Beijing and Shanghai have seen fewer births than western regions such as Qinghai province, a factor linked to migration. Other areas such as the “rust belt” northeastern region, known as Dongbei, have seen a decline for economic factors, however.

Yet others blame faltering “traditional concepts of marriage and parenthood.” Marriage registrations have dropped each year since 2013. Meanwhile, divorces are also increasing.

“Young people’s ideas of family and giving birth are changing, and traditional values such as sustaining family lineages through giving birth have been weakening,” Nankai University’s Yuan Xin told China Daily.

Other factors include rising costs of raising children, including higher housing prices and competition for quality education, together with a lack of daycare facilities.

Turning Point

Yi Fuxian, an economist at Peking University, has suggested that the population has already started shrinking, declining in 2018 for the first time since the 1960s famines caused by the “Great Leap Forward.”

“It can be seen that 2018 is a historic turning point in China’s population,” he told the New York Times.

“China’s population has begun to decline and is rapidly aging. Its economic vitality will keep waning.”

A shrinking workforce is one of the first such negative outcomes for the world’s second-largest economy.

The working-age population, which consists of those between the ages of fifteen and sixty-four, shrank for four straight years after peaking in 2013.

As a result, China’s dependency rate—the portion of nonworking people, including children and the elderly—rose for the first time in more than thirty years in 2011 and is expected to continue rising.

The nation’s elderly population could reach 400 million by the end of 2035, up from 240 million last year, according to government forecasts.

This is already hitting government budgets. Pension payouts reached 640 billion yuan ($90 billion) in 2016, up 140 percent from five years earlier. Analysts suggest this figure could rise substantially, to as high as 60 trillion yuan annually by 2050, accounting for more than 20 percent of total government spending.

This is despite China’s social security, pension and healthcare system being relatively limited, with an estimated 900 million Chinese living with little social safety net.

These projections have added further fuel to claims that Asia’s biggest economy is “already getting old” before it gets rich.

“In advanced countries, the cohort of those aged over sixty roughly doubled to about 24 percent of the population between 1950 and 2015. At that point, per capital income was about $41,000,” notes Bloomberg Opinion columnist Shuli Ren.

“In China, this process is going to take just another 12 years, to 2030. But its income per head in 2025 would still be only a third of the level in advanced economies in 2015.”

Restrictions Eased

Aware of the looming crisis, Chinese policymakers have moved to further loosen restrictions on family planning. Penalties are being removed at the local level for having “over-quota” children, with suggestions that birth restrictions will be abolished completely.

China’s National Health Commission is now working with other departments to “research and improve policies involving taxation, employment, social security and housing to support the implementation of the universal second-child policy,” China Daily noted.

One such measure is a proposal to increase the retirement age from fifty-five to sixty for women and from sixty to sixty-five for men, bringing China more in line with international norms.

Local governments have also responded with subsidies, the extension of maternity leave and other initiatives including campaigns such as the “1,001 reasons to have a baby.”

Yet as seen in the developed world, reversing a declining birth rate is extremely challenging, even with ultra family-friendly policies.

A study by economist Lyman Stone found that even Nordic-style policies offering extensive family support have had little impact on long-term fertility, amid a declining fertility rate across advanced nations “nearly unmatched in its global breadth and its severity.”

An economic slowdown has seen the nation slip from double-digit growth in gross domestic product (GDP) to single digits, while debt has climbed to reach some 254 percent of GDP as at the end of 2018.

Welcoming more foreign workers, as Japan has done, or enhancing labor productivity are seen as two ways of compensating for a shrinking workforce. Yet Harvard Business Review contributors J. Stewart Black and Allen J. Morrison see plenty of headwinds, including declining productivity growth and a lack of openness to foreigners, including in major Chinese corporations.

“If the current leadership composition continues, we predict that like Japanese firms before them, Chinese companies will begin to slide off the Global 500,” Black and Morrison predict.

From having a demographic dividend from a rising working-age population, an economic model “grounded in the exploitation of inexhaustibly cheap labor” is fast running out of steam.

Analysts at JPMorgan see China’s growth potential slowing to 5.5 percent from the current rate of 6.5 percent between 2021 and 2025, falling further to 4.5 percent by 2030, making it difficult for China to overtake the United States as the world’s biggest economy.

“This means that China will remain the second-largest economy much longer than expected,” the analysts said.

China’s demographic contraction will reduce its GDP growth rate as well as its ability to fund its foreign ambitions such as the Belt and Road Initiative. The party’s social compact will also come under increasing pressure as economic growth eases and inequality rises.

Meanwhile, the combined workforces of India, Indonesia and the United States are expected to keep expanding through at least 2060. A high birth rate and strong immigration levels should see the U.S. population increase from 324 million in 2017 to 390 million in 2050, while India’s population is seen overtaking China’s by 2027.

If demographics are destiny, then China is facing its biggest challenge in decades with no easy long-term solution in sight.

Anthony Fensom is an Australia-based freelance writer and consultant with more than a decade of experience in Asia-Pacific financial/media industries.

Image: Reuters