Wang Feng: China’s Population Destiny: The Looming Crisis

[Wang Feng is professor of sociology at the University of California, Irvine and a senior fellow at the Brookings Institution and director of its Tsinghua Center for Public Policy. His books include Boundaries and Categories: Rising Inequality in Post-Socialist Urban China (Stanford University Press, 2007).]

Observers of China’s rise, when assessing the implications for global peace and prosperity, have largely focused their attention on the country’s economy, on its energy and resource needs, on the environmental consequences of its rapid expansion, and on the nation’s military buildup and strategic ambitions. Yet, underlying all these dazzling changes and monumental concerns is a driving force that has been seriously underappreciated: China’s changing demography.

With 1.33 billion people, China today remains the world’s most populous country. In a little more than a decade, however, it will for the first time in its long history give up this title, to India. But, even more important, China’s demographic landscape has in recent decades been thoroughly redrawn by unprecedented population changes. These changes will in the future drive the country’s economic and social dynamics, and will redefine its position in the global economy and the society of nations. Taken together, the changes portend a gathering crisis.

One number best characterizes China’s demographics today: 160 million. First, the country has more than 160 million internal migrants who, in the process of seeking better lives, have supplied abundant labor for the nation’s booming economy. Second, more than 160 million Chinese are 60 years old or older. Third, more than 160 million Chinese families have only one child, a product in part of the country’s three-decade-old policy limiting couples to one child each. (The total populations of countries like Japan and Russia do not reach 160 million; Bangladesh’s population is roughly equal to that number.)

But the relative size of these three Chinese population groups of 160 million will soon change. As a result of the country’s low fertility rates since the early 1990s, China has already begun experiencing what will become a sustained decline in new entrants into its labor force and in the number of young migrants. The era of uninterrupted supplies of young, cheap Chinese labor is over. The size of the country’s population aged 60 and above, on the other hand, will increase dramatically, growing by 100 million in just 15 years (from 200 million in 2015 to over 300 million by 2030). The number of families with only one child, which is also on a continued rise, only underscores the challenge of supporting the growing numbers of elderly Chinese.

Why should one care about these demographic changes, and why should the overused label “crisis” be attached to such slow-moving developments? The aging of China’s population represents a crisis because its arrival is imminent and inevitable, because its ramifications are huge and long-lasting, and because its effects will be hard to reverse.

Political legitimacy in China over the past three decades has been built around fast economic growth, which in turn has relied on a cheap and willing young labor force. An aging labor force will compel changes in this economic model and may make political rule more difficult. An aging population will force national reallocations of resources and priorities, as more funds flow to health care and pensions.

Indeed, increased spending obligations created by the aging of the population will not only shift resources away from investment and production; they will also test the government’s ability to meet rising demands for benefits and services. In combination, a declining labor supply and increased public and private spending obligations will result in an economic growth model and a society that have not been seen in China before. Japan’s economic stagnation, closely related to the aging of its population, serves as a ready reference.

China’s demographic changes will also have far-reaching implications for the world economy, which has relied on China as a global factory for the past two decades and more. The changes may also affect international peace and security. An aging population is likely to lead to a more peaceful society. But at the same time, the projected 20 to 30 million Chinese men who will not be able to find wives, due to the country’s decades-long imbalanced sex ratio at birth, may constitute a large group of unhappy, dissatisfied people. Claims that these future bachelors will harbor criminal intentions and a propensity to form invading forces against China’s neighbors are unsubstantiated and overblown. Still, the fact that such a large number of Chinese men will not be able to marry is clearly a serious social concern, and the issue should not be neglected.

What also makes China’s demographic future a looming crisis is that, so far, the changes have largely taken place under the radar. This is so in part because China still has the world’s largest population and its population is still growing. It is also due in part to a continued tendency in China and elsewhere to believe that overpopulation is the root cause of all problems. Hence China’s hesitation, even reluctance, to phase out its one-child policy—an important cause of the country’s demographic challenges.

Something little understood by the outside world, and indeed to the Chinese government and public

Reversal of Fortunes

China’s astonishing economic expansion over the past two decades took place within a highly, almost uniquely favorable demographic context. But the country is at the end of reaping economic gains from a favorable population age structure.

Economic growth relies on a number of basic factors. Aside from institutional arrangements, these include capital, technology, markets, and labor. In China’s case, foreign direct investment, especially from overseas Chinese, brought not only capital but also technology and management know-how. Foreign consumer demand, especially in the United States (fueled first by the dot com boom and then by the housing and stock market boom), supplied a ready market for China’s export industries. But capital, technology, and overseas markets alone would not have made China a global factory in the last two decades of the twentieth century. The country’s economic boom relied on another crucial factor: a young and productive labor force.

Such a labor force, a non-repeatable historical phenomenon resulting from a rapid demographic transition, was fortuitously present as the Chinese economy was about to take off. The large birth cohorts of the 1960s and 1970s were at their peak productive ages when the boom began. This good fortune, measured as a demographic dividend, is estimated to have accounted for 15 to 25 percent of China’s economic growth between 1980 and 2000.

The term “demographic dividend” refers to gains (or losses) in per capita income brought about by changes in a population’s age structure. It is expressed as the ratio of the growth rate of effective producers to the growth rate of effective consumers. It resembles but is not the same as the commonly used “dependency ratio,” which is the ratio of the dependent-age population (such as 0–14 years old and 60 and above) to the productive-age population (such as 15–59 or 20–59). The demographic dividend, unlike the dependency ratio, takes into account people in the productive age cohort who are not contributing to income generation (for example, because they are unemployed) as well as those within the dependent age range who generate income (such as from after-retirement earnings).

For the most part, China has exhausted its demographic fortune as measured by the demographic dividend—that is, by the changing support ratio between effective producers and effective consumers. Between 1982 and 2000, China enjoyed an average annual rate of growth in the support ratio of 1.28 percent. Using the World Bank’s figure of per capita annual income growth during this same period, 8.4 percent, we find that the demographic dividend accounted for 15 percent of China’s economic growth. Today, the net gain due to favorable demographic conditions has been reduced to only one-fifth of the average level maintained from 1982 to 2000.

By 2013 China’s demographic dividend growth rate will turn negative: That is, the growth rate of net consumers will exceed the growth rate of net producers. Starting in 2013, such a negative growth rate will reduce the country’s economic growth rate by at least half a percentage point per year. Between 2013 and 2050, China will not fare demographically much better than Japan or Taiwan, and will fare much worse than the United States and France.

As a result of China’s very low fertility over the past two decades, the abundance of young, inexpensive labor is soon to be history. The number of workers aged 20 to 29 will stay about the same for the next few years, but a precipitous drop will begin in the middle of the coming decade. Over a 10-year period, between 2016 and 2026, the size of the population in this age range will be reduced by about one-quarter, to 150 million from 200 million. For Chinese aged 20 to 24, that decline will come sooner and will be more drastic: Over the next decade, their number will be reduced by nearly 50 percent, to 68 million from 125 million.

Such a drastic decline in the young labor force will usher in, for the first time in recent Chinese history, successive shrinking cohorts of labor force entrants. It will also have profound consequences for labor productivity, since the youngest workers are the most recently educated and the most innovative.

As the young population declines, domestic demand for consumption may weaken as well, since young people are also the most active consumers of everything from wedding banquets to new cars and housing units. And because China is a major player in the global economy, the impact of the country’s demographic changes will not be limited by its borders.