Ever since Beijing announced a few months ago that China’s population is shrinking, commentary has speculated on how the trend will set back the nation’s economic prospects. The concern is warranted. Chinese demographics will hamstring the once-booming economy.
What is missing in much of this speculation, however, is an explanation of how demographic trends will do economic damage. Here, in a nutshell, is the needed perspective.
China’s demographic grief has its roots in a decision taken in the late 1970s by then-Chinese leader Deng Xiaoping. Just as the economy was opening to the world, he decided to free up as much of the population for work as possible by promulgating a policy allowing only one child per family.
This “one-child policy” worked to an extent. In the 1980s, Chinese fertility rates fell from a high average of six to seven births in each woman’s lifetime to less than three. By the 1990s, that average had fallen under two, the number needed to keep the population from declining. It has stayed that low since.
Initially, the trend freed up more people to work outside the home. These people manned China’s factories and produced an economic surplus sufficient for a surge in exports and capable of supporting the monumental infrastructure projects for which China quickly became famous. The real economy boomed, growing in excess of 10 percent a year for decades.
However, although the “one-child policy” worked in the late 20th and early 21st centuries, it has caused trouble in China today and will continue to do so. The low birth rates of the past 35 years or so have radically slowed the flow of young workers to take the place of the generation of workers now retiring. The shortage of available labor has held back overall growth rates and will persist in doing so. Beijing calculates that currently, China has only half the number of factory workers it needs.
This limited number of workers will have to support themselves, their immediate dependents, and a good portion of what each retiree needs. It will not matter whether the retirees have adequate pension resources or fall on public support; the economics will be the same. Workers, in addition to other needs, will have to produce retiree demands for food, clothing, shelter, medical services, and more. Under such pressure, it is hard to see China also producing an economic surplus to support its huge export machine or the investment projects needed for rapid economic growth.
There are, of course, mitigators. Increased productivity—perhaps from applications of artificial intelligence—will substitute for tasks currently done by humans. It will also enable tomorrow’s workers to produce more than workers in the past. This source, however, can offer only so much relief. Even today’s huge youth unemployment problem cannot help much.
Most of today’s unemployables are university-educated and have little inclination to labor, which is where the need exists. Rather than a source of relief, these people reflect a wasted effort that actually detracts from the available workforce. Immigration could help, at least theoretically, but few are clamoring to get into China. Indeed, the country has a net out-migration.
Beijing has acknowledged its past error and now encourages families to have more children. Even if people were to take advantage of Beijing’s new liberality, it would take 15–20 years for these births to affect the economy’s workforce. As it is, fertility rates seem to have fallen since the “two-child policy” was enacted.
Demographics are only one of China’s economic challenges. They are, however, a critical one and truly fundamental in every sense of the word. Moreover, this problem is nothing that China could hope to fix quickly—certainly not quickly enough for Beijing to hit its long-term growth targets, much less fulfill Chinese Communist Party leader Xi Jinping’s ambition of economic and diplomatic hegemony.
