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China’s demographics threaten its economic potential

China has long been the world’s most populous country. In recent decades, it has reaped the economic benefits of having a young workforce fuelling its emergence as an industrial powerhouse. Economists have predicted that by the mid-2030s, China could overtake the US to become the world’s biggest economy. But could demographic headwinds prevent that from happening?


China’s population is now in decline

Last year saw China’s population drop for the first time in decades. This year, China will no longer be the world’s most populous country, ceding the title to India according to UN data. China’s population remains huge – at 1.4 billion, equivalent to all the countries in Africa combined, and nearly double Europe’s 744 million people. But it is now forecast to decline in the years ahead. What’s driving this?


The after effects of China’s one-child policy is catching up with it

China’s population grew rapidly during the mid-twentieth century, expanding nearly 50% between 1950 and 1970. Grappling with the challenges of effectively governing such a fast growing population, the Chinese Communist Party introduced population control measures known as the ‘later, longer, fewer’ campaign in 1973. This raised the legal marriage age to 23 for women and 25 for men, encouraged at least a three year gap between births, and limited births to two children. There were penalties for non-compliance. The policy succeeded in its objective – by 1980, the average number of births per woman had fallen from 6.1 to 2.7. To maintain population size, the fertility rate needs to be about 2.1 children per woman.

In 1980, the CCP followed up ‘later, longer, fewer’ with its one-child policy. This limited couples to a single child. The policy evolved in the mid-1980s to allow ethnic minorities and rural families to have a second child if the first child was a girl.

Although China abandoned the one-child policy in 2015, its after-effects continue in the form of a low fertility rate of 1.6 children per woman (which some believe is an under-estimate). In major cities such as Shanghai, fertility may stand at one birth per woman or fewer.


China has a gender imbalance

One unintended consequence of the one-child policy is that China has one of the most imbalanced sex ratios in the world, because of a strong cultural preference for sons, plus selective abortion. As recently as 2021, there were 110 males born for every 100 females. Today, China has 30 million more men than women. In the years ahead, China will have to grapple with the challenge of tens of millions of single men, mostly from lower-income rural backgrounds, with few prospects of marrying or having children.


China is an expensive place in which to raise a child

China’s low birth rate can’t be attributed solely to government policies. Economic concerns also play a big role – arguably, the biggest role. The YuWa Population Research Institute, a Beijing-based think tank, believes that China is amongst the most expensive countries in the world in which to raise a child – more so than the US or Japan.

Soaring house prices and an overall increase in the cost of living makes child-rearing financially daunting for many. In 2019, it was reported that the average cost of raising a child to age 18 in China was nearly seven times the country’s GDP per capita.

The Covid-19 pandemic and the CCP’s zero-Covid policies (now eased) made things worse, with reports suggesting that strict lockdown policies which limited hospital access, even for expectant mothers, further dissuaded some from wanting to have children.


China has a rapidly ageing population

Alongside a falling birth rate is an ageing population. According to Chinese state media, 20% of China’s population is age 60 or older. By 2035, that percentage is expected to hit 30%. That’s more than 400 million people.

In 1990, the median age of the Chinese population was 25. By 2015, it was 37. By 2040, it’s predicted to be 48. No other country has aged at such a rapid pace. The process is especially pronounced in rural China, as young Chinese migrate to cities in search of economic opportunity.

China’s ageing population has implications for its dependency ratio – i.e. the proportion of its population outside working age compared to the proportion that is working age. According to UN estimates, on the current trajectory, there will be more Chinese people outside working age than in it by the 2070s.


More people migrate out of China per year than into it

China is not alone in having a declining birth rate and an ageing population – so too do many other countries. But whereas Western countries tend to offset low birth rates with high net migration to replenish the working age population, migration to China is negligible.

Since at least 1950, when the UN started compiling statistics, China has seen more people leave the country each year than move to it. In 2021, for example, net outward migration was around 200,000. Today, immigrants make up just 0.1% of China’s population. Compare this to the UK, where people born elsewhere make up 17% of the population. The UN forecasts that China will continue to experience net negative migration for the rest of this century, with estimates hovering at around 310,000 people leaving the country per year.

By comparison, net migration to the UK in the year to June 2022 stood at over 500,000 people (a figure which only accounts for legal migration and is probably an under-estimate) – the largest annual increase in migration in British history. In Jeremy Hunt’s March 2023 budget, the UK’s future (modest) economic growth prospects are predicated on net migration being maintained at around 250,000 people per year.


China’s ageing population will have far-reaching social consequences

Historically, most Chinese children care for their parents in old age, reflected in the Chinese saying, ‘raise children to provide for old age’. But as China’s working age population shrinks in proportion to the elderly population, the burden of supporting retirees will grow.

Countries in the West also face this problem but there are differences. Aside from using net migration to boost the working age population, Western populations have aged more gradually, giving governments more time to adjust to the public policy implications. What’s striking about China is that it has begun the ageing process at an earlier stage of its economic development and at a faster pace than other countries have experienced.

It seems likely that demographic changes will see Chinese family structures atrophy or evaporate. Traditionally, Chinese society has relied on extended family networks to cope with economic hardships. But an entire generation of Chinese youth is made up of mostly only children, young men and women with no siblings, and few cousins, uncles and aunts – which means family networks will be smaller in size.


India could be the beneficiary

India – which this year takes on the mantle of world’s most populous country from China – could be a beneficiary of China’s demographic setbacks. Today, about half of India’s population is below 25 and two thirds below 35. In the years to come, the proportion of India’s working age population will increase relative to China’s, which could see a shift in manufacturing jobs from China to India – especially as companies look to diversify supply chains post-Covid.


Demography as destiny?

Amongst the biggest factors that shape long-term competition between economies are changes in the size, capabilities, and characteristics of populations. The US – for so long, the world’s biggest economy – is a prime example.

In 1850, the US population was 23 million, or 13 million fewer than France at the time. Today, the US is home to 330 million people, larger than the British, Dutch, French, German, and Italian populations combined. For over a century, the US has had the world’s largest high skilled, well-educated workforce which, more than geography or natural resources, explains its economic dominance for so long.

For a while, economists have been fixated on the idea of China surpassing the US to become the world’s leading economy – with all that implies for global power dynamics. But the combination of a collapse in fertility, an ageing population, an increasing dependency ratio, and little prospect of mass immigration now threatens that prospect. Demography can indeed be destiny.

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