The news that China’s population shrank this year for the first time since the 1950s on some reckonings presages an end to the country’s economic modernisation. Without a young and rapidly growing workforce, the impetus to economic growth and modernisation could peter out, some contend.
With an ageing population, a smaller proportion of the workforce has to cover for those not engaged in productive employment and, by simple arithmetic, that drags down average per capita output. A young and rapidly growing population has the potential at least to lift average per capita output because it more readily absorbs the new skills and knowledge to boost productivity or output per head. That’s what gives the old aphorism that China will grow old before it grows rich its ominous ring.
Those who worry about China’s rising power suggest that India is now the best hedging bet, with its much younger and rapidly growing population, although that will depend on whether there is sufficient investment in physical and human capital to stave off immiserising growth. In any case, India’s income is still less than one-fifth that of China. Even if China were to stop growing altogether and stagnate completely, and India were to grow at 7 to 8 per cent every year and double its income every decade, India won’t catch up with China until 2050.
The impact of China’s demographic transition on its economic modernisation is more complex and gradual than these accurate propositions, qualified by the assumptions on which they rest, suggest. Transition takes time. And its character will be qualified by both feasible policy responses and the behaviour of ordinary people to the new circumstances they face.
As Peter McDonald argues in this week’s lead article from the latest issue of East Asia Forum Quarterly, edited by Jocelyn Chey and Ryan Manuel, ‘[i]n the short to medium term, between now and 2040, China’s labour force will fall by only 8 per cent assuming constant age and gender labour force participation rates … because the size of the labour force will increase at older ages while falling at younger ages’.
As Premier Li Qiang somewhat cheekily hinted, the Chinese government has scope to lift older age labour participation rates. That can offset the projected fall in the labour force. In China, older people also have an incentive to continue working because of low pension coverage and few children to provide support, although they are overwhelmingly low-skilled.
A shift from low-skilled, labour-intensive production to higher value-added production based on advanced technologies, McDonald reminds us, is what’s necessary for transition from middle income to higher income status. China can no longer depend on the demographic dividend (a growing workforce, higher labour participation and higher employment) but needs higher labour productivity to drive growth. This is a transition that has been successfully navigated in Japan, South Korea and Taiwan and is already well under way in China, a country ‘which has almost half of the world’s industrial robots and is a manufacturer of electric vehicles, lithium-ion batteries and photovoltaic solar panels’.
The next two decades will be critical.
In the years leading up to 2040, ‘China’s highly productive young workers (who unusually earned roughly twice that of their 50 plus year old counterparts in 2014) will age and increase labour productivity across the age range of the labour force. Each new generation entering the labour force will be better educated than its predecessors. This should ensure healthy economic growth in China over this period’, says McDonald.
Demographic changes that are now underway will certainly have major impacts on the economy of China. But how these changes will all play out is unclear, McDonald points out — especially in the longer term where there is a high degree of uncertainty in population predictions — because there is no precedent of a population falling by such vast numbers (around 658 million between now and 2100). In the medium term, two decades out, it’s easier to be more confident, as McDonald is, about the likely impact of demographic changes.
The new issue of EAFQ, ‘China Now’, canvasses a range of shifts in Chinese society and daily life beyond that of these demographic changes, as well as the big strategic shifts that confront China today.
While many rejoice in something like ‘normality’ after the years of disruption by the global COVID-19 pandemic, the world will not resume its former shape. Nowhere is this more evident than in China.
The COVID-19 pandemic upturned normal life in China as it did around the world. As 2023 brings something of a return to normality in China, deeper currents are also coming to the surface.
After a disastrous economic performance in 2022, a recalibration of China’s policies was essential — including through a retreat from zero-COVID policies and relaxation of restrictions on the free market under the banner of ‘Chinese-style modernisation’. While the economy is expected by Chinese economists to grow by 5–6 per cent this year, flagging domestic consumption remains a concern. Policy responses to China’s macroeconomic challenges include deeper integration with the global market and boosting multilateral engagement, with a specific focus on the World Trade Organization, Belt and Road Initiative, the New Development Bank and the Asian Infrastructure Investment Bank. China is also doing more at home and abroad to confront the looming climate crisis.
As the world watches its leader Xi Jinping with an increasingly sceptical eye, China is now trying to get back to business. China’s greatest post-pandemic challenge, however, will be the terms of its engagement with the outside world.
The tensions between economic progress and individual and political freedoms, the repression of local political freedoms and identity in Hong Kong and Xinjiang, and rising tensions between the United States and China over Taiwan, all illustrate the contradictions between China’s domestic political trajectory and its globalist foreign policy objectives — defining it, according to William Overholt, as an ‘anxious adolescent superpower’, claiming both developing nation status and global leadership.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.