A Country For Old Men: China's Demographic Decline 'Severe and Irreversible'

 @ibtimes on July 14 2012 10:26 AM

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An elderly man walks through a traditional Chinese alleyway in Beijing. (Reuters)

If demography is a dismal science, then Chinese demographics is certainly doing nothing to help the field's tendency toward promoting pessimism.

On Tuesday, Wang Feng, the Director of the prestigious Brookings-Tsinghua Center in Beijing (an extension of the Washington-based think tank of the same name) noted at the annual China Insight Global Forum held in Singapore that China was sinking into a severe and irreversible demographic crisis, according to Caixin, a Chinese and English business and political news publication.

Wang warned that at this point increasing the birth rate is very difficult, if not impossible for China.

China's present ratio of working-age people (20 to 59) to retired people is 5 to 1, and it's expected to fall to 2 to 1 by 2030.  

That trend is adding to concerns about China's long-term economic growth potential. The government's recently released GDP growth figures for the second quarter of the year, 7.6 percent, failed to impress markets and increased fears that there could be a new onset of economic malaise in East Asia.

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An elderly man skimming a newspaper. In several decades, the elderly will be reading from cell phones. (Reuters)

In past years, analysts, both international and Chinese, have rebuked Beijing for not taking stronger measures to increase birth rates and reform the social security system. Many have openly supported doing away with the One Child Policy, citing its irrelevance and the shameful practices it sometimes incentivizes.

According to the World Bank and the United Nations, China's current birth rate hovers between 1.5 and 1.6 children per woman, well below the 2.1 rate considered necessary for maintaining replacement levels.

In the 1950s and 1960s, China's booming population growth was interspersed with years of famine and crippling poverty. Zero-sum thinking on the relationship between wealth distribution and population size supported the mindset of policymakers and scholars that more people equated to a smaller share of wealth for each person.

That simplistic thinking has now largely been rejected by most mainstream economists and demographers, but not before China embarked in the 1970s and 1980s on national initiatives to stem population growth -- culminating in the strict policy of birth limitations.

The effect, fast-forwarded decades into the future, is a dramatic one. Figures from the Gerontological Society of China say the country's over-60 cohort was 167 million strong in 2010. That's larger than the population of Japan (a country itself suffering itself from demographic decline), and more than half the population of the entire United States.

Although the figure only accounted for 13 percent of China's population, it has been growing fast, and is expected to exceed 200 million by next year.

In early July, the director of the World Social Security Research center of the Chinese Academy of Social Sciences, Zheng Bingwen, noted to the Jinghua Times in Beijing that the country's working-age population would decrease significantly over the next 40 years, from 970 million in 2010 to 870 million by 2050. The workforce as a percentage of the total population will shrink from a little over 70 percent to just above 60 percent over that period.

Those in their post-teen prime, from 20 to 24, numbered 125 million in 2010; by 2020 there will only be half of that number, 68 million -- and they will be unlikely to choose to have larger numbers of children. The higher estimates say China already has 119 men for every 100 women.

According to Wang, about 63 percent of families in China have only one child. He claims the biggest decrease in Chinese birth rate occurred in the 1970s, before the One Child Policy was enforced. The policy then was largely unnecessary since the population was already decreasing due to contraception, and may now be damaging.

Amazingly, in the early 1960s China's fertility rate was only slightly less than 6.0; by 1979, a year before enforcement of One Child, it had already dropped to 2.7.

In other words, China's population would have decreased regardless. Higher availability of contraception, better family planning education, longer lifespans, less agrarian lifestyles, and increasing female empowerment was already pushing down the birth rate, albeit far less severely.

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Old men gather in Changzhi, Shanxi province in later 2010. Photo from Reuters.

Although academics have warned that broader social welfare reforms are needed to offset the economic effects of the demographic decline, very few extensive reforms have yet to be carried out.

The coming demographic challenges mean the government should start spending more today for public health and senior care. Wang (and many others) thinks immediately directing investment from basic infrastructure, a major focus of government spending in China, into these social welfare programs will better cushion the country.

Other scholars have argued that the effect could have other consequences, such as helping increase domestic consumption (since families will have less incentive to maintain high rates of savings for retirement).

China's current pension system remains fractured, including various different systems for different workers, providing different levels of benefits. Numerous Chinese scholars consider the setup antiquated, and moreover a source of social tension.

The current head of the government's Social Security Research Institute in the Ministry of Human Resources and Social Security, He Ping, recommended in early July that the country gradually increase the retirement age for men and women to 65 over the next twenty-some years.

The proposal met with widespread condemnation from China's youthful internet community.

Life expectancy in China is between 73 to 74 years, according to the World Bank; in the U.S. it's five years longer. Retirement in America has historically been at 65, and European countries like France and Spain have also embarked on increasing their retirement age to 67 from 62 in past years.

Old age dependency ratios -- the size of the elderly as a percentage of the working age population -- remains quite low in China, only 11 percent, whereas is it around 20 percent in the U.S. However, by 2050, China's rate could triple.

Many scholars think the labor shortage could create a historically unprecedented event: China, a country with a long history of diaspora communities and outgoing migration, may actually need to begin promoting immigration. Human resources consultancies like Manpower think the country will begin to do so as early as 2030.

Whether an aging population, in a country with environmental, social, and other economic problems, will make China a welcoming, desirable place in comparison to the U.S. and Western Europe, remains to be seen.

However, the country has already seen large influxes of new foreign migrants. After all, increasing numbers of Africans are showing up in Guangzhou (though not always welcome and not always happy with local police), and increasingly larger numbers of expat Westerners are also flocking to China to do business and look for work.

Most demographic predictions on China speak of doom and gloom. There's certainly a prevalence in the West to lock China's conditions into either the China threat or China collapse categories.

Yet there could be some unexpected but positive side effects to the demographic decline.

Fewer families could mean diminished importance of having the right guanxi -- extended connections that help people move ahead in society (the American equivalent of networking only scratches the surface of the social and cultural depths of guanxi's role in Chinese society). The decreasing effect of guanxi on the Chinese job market could also make it more meritocratic, lessening perceptions of inequality and corruption.


Taichi: a much calmer activity than internet criticism. Photo from Reuters.

In addition, an aging population may have less stomach for high spending on defense and the military, instead hoping the government puts more money into health and social spending. There would be fewer hot-headed youths itching to pick a fight with the country's many neighbors (it has the most of any country in the world) as well.

The elderly, generally a risk-averse group, certainly don't have a reputation for political ruckus-making and revolutionary activities. That could also translate into more political and social stability in China.

Regardless of whether the demographic decline brings with it economic catastrophe, it will mark a historic moment in China's, if not the world's, history.

For centuries, China has been the most populous political entity in the world -- by 2025 it could lose that spot to India.

The geopolitical implications of that change are difficult to predict, but most experts are hoping steps will be taken sooner rather than later to prevent social, economic, and political stresses on the country.

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