China’s aging population is more of a challenge than its one-child policy, say economists

A medical worker takes care of a newborn baby lying in an incubator at Jingzhou Maternity & Child Healthcare Hospital on the eve of Chinese New Year, the year of the ox, on February 11, 2021 in Jingzhou, Hubei Province.

Huang Zhigang | Visual China Group | Getty Images

BEIJING – China’s decade-long one-child policy attracted renewed attention in recent weeks after authorities gave mixed signals as to whether they were any closer to lifting limits on the number of children people can have.

The authorities have withdrawn the controversial one-child policy in recent years to give people the opportunity to have two children. However, economists say other changes are needed to spur growth as births decline and China’s population ages rapidly.

“There are two ways to address this. One way is to loosen birth control. Something (that) helps on the verge, but even if you loosen control completely it is likely to be difficult to reverse the trend,” said Zhiwei Zhang, Chief Economist at Pinpoint Asset Management.

“The other way to deal with it from an economic policy perspective is to make industry more dependent on other sectors,” he said.

China’s economy has relied heavily on industries such as manufacturing, which require large amounts of cheap labor. However, rising wages make Chinese factories less attractive, while workers need higher skills to make the country more innovative.

The bigger problem for China is that an aging population feeds into an existing problem: slower labor productivity growth, said Alicia Garcia-Herrero, Natixis’ chief economist for Asia Pacific. She watches whether China will grow faster in capital-intensive sectors, which can be attributed more to investments in automation.

Births will fall by 15% in 2020

China introduced its one-child policy in the late 1970s to curb population growth. According to official figures, the country had doubled in size from more than 500 million people in the 1940s to over 1 billion in the 1980s.

Over the next 40 years, the population grew by only 40% – to 1.4 billion, more than four times the US today.

I don’t think the easing of birth policies could have much economic repercussions as the slow population growth is not due to political restrictions, not in the last 20 years.

Dan Wang |

Chief Economist Hang Seng China.

Similar to other major economies, high housing and education costs in China have deterred people from having children in recent years.

Despite a change in 2016 that allowed families to have two children, births fell for the fourth year in a row in 2020, falling 15% to 10 million, according to analysis of a public safety report.

“In general, I don’t think the birth policy easing could have a big economic impact as the slow population growth is not due to political restrictions, not in the last 20 years,” said Dan Wang, Shanghai chief economist at Hang Seng China.

She said, based on the experience of other countries, the most effective policy for a country the size of China would be to accept more migrants, but that would be an unlikely change in the short term.

Other options that policymakers are already pursuing include raising the retirement age, improving the skills of the existing workforce through more education, and using more machines and artificial intelligence to replace human workers, Wang said.

Policy changes are only a matter of time

The one-child policy received renewed attention last month when the National Health Commission issued a statement authorizing research into the economic benefits of lifting restrictions on birth in a northeastern region. The three-province area known as Dongbei has economic problems and the lowest birth rates in the country.

Two days later, the commission issued another statement saying that, despite much online speculation, the news was not a test for the complete repeal of family planning policy.

However, according to economists polled by CNBC, lifting the limits is likely only a matter of time.

Yi Fuxian, critic of the one-child policy and author of “Big Country with an Empty Nest,” said he expected a decision by the end of the year after China released census results once in a decade in April.

Challenges posed by China’s aging population

The Chinese government has also stated that implementing a strategy to respond to an aging population will be a priority for its next five-year plan, which will be formally approved at a parliamentary session starting this week.

Meanwhile, the generations born prior to the implementation of the one-child policy in the 1980s are becoming a significant segment. In the next 10 years, according to Morgan Stanley, 123.9 million more people will enter the age group 55 and over. This is the largest demographic increase among any age group.

This demographic shift will create its own economic demands, said Liu Xiangdong, deputy director of the economic research department at the China Center for International Economic Exchanges in Beijing.

Liu said more workers are needed to care for the elderly, while retirement communities and other infrastructures tailored to an older population will see greater demand.

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