China, home to 1.4 billion people and a country with a huge reliance on its workforce made its way to become an economic giant with the help of their massive population. Their demographics has made them what they are today.
Nearly 40 years ago, before the initiation of economic reforms and trade liberalization, China maintained policies that kept the economy stagnant – centrally controlled and relatively isolated from the global economy.
But since they started opening up to foreign trade investment and implementing free market reforms, China has been among the world’s fastest growing economies.
Such growth has enabled China to almost double their GDP every eight years. This also helped them raise nearly 800 million people out of poverty. And that one key factor behind this growth was China’s massive and low-cost workforce.
After economic reforms, many foreign companies came to China in the 90s and the 2000s in order to reduce production costs and improve their profitability by using the young, massive and cheap workforce.
Eventually China became an attractive place or some may also like to call it the world’s factory. But the demographic advantage on which this country is growing has started fading away.
Even after being the most populous country, China is leaning towards a demographic disorder. The country’s population is aging at a fast pace and the birth rate too is going down.
The census data released early this month showed China’s total population rose by 5.8% over the past decade. This was the slowest pace of growth since the 1960s. It also showed the country’s labor force is getting smaller.
The number of people aged between 15-59 dropped below 900 million to about 63% of the population. This was down by about 7% from the previous decade.
At the same time, the birth rate has also slowed down. Last year, 12 million babies were born in China, down from 14.65 million in 2019. This is a fall of 18% in one year.
You must know, slowing population growth is not new for many advanced economies. Some of the world’s wealthiest economies have negative population growth and low fertility rate.
For example; Japan’s population peaked in 2010. After that it has been falling down. South Korea saw its first dip in 2020 and Singapore reported a decline last year since 2003. Each of these nations has long contended with an aging society and a diminished fertility rate.
Similarly, China’s economic expansion has created a society where many young couples now struggle with some pressures. That includes rising education and housing costs which makes it difficult to have even one child.
Also, due to technological changes and improved living standards, life expectancy has been improved. And as countries become more developed, birth rates tend to fall due to education or other priorities such as careers.
Now one of the main reasons behind this demographic problem, is China’s one child policy. It was implemented in 1979 to control the population growth. But it is believed, that over the years it has impacted the population growth artificially rather than naturally.
Although this policy was changed to a two-child policy in 2015, still it failed to improve the falling birth rate. Now, after the recent census data, some experts believe this policy could be removed in the coming time.
Now, if you look at advanced economies, such as Japan, South Korea, or Singapore, then these nations have achieved a certain level of wealth before reaching the negative population growth.
But, this is not the case with China. Today, 13.5% of the Chinese population is age 65 or above. So, if you compare it with Japan, then China has as many elderly people as Japan in the early 1990s.
This was the beginning period of three lost decades of Japan’s economic stagnation. Now to get a clear view, we will look at the GDP per capita which is a broad measure of a country’s standard of living.
According to world bank data, China’s current GDP per capita is just US$10,500 compared to Japan’s US$31,400 in 1992. So we can say, China’s population started to decline before it reached a certain wealth. Hence, this might have negative impact on the economic growth.
Because when a young population in a country declines, it creates labor shortages which have a major detrimental impact on the economy. Also, more old people means demands for health care and pensions can soar, burdening the country’s social spending system when fewer people are working and contributing to it.
So this problem is unique to China. Because unlike the other developed countries which are part of this trend, China is still a middle-income society, despite being the world’s second largest economy.
Also, we cannot forget that the country heavily relies upon its workforce as they are still very much dependent on labor-intensive industry. The demographic challenges are definitely going to make things difficult for China in future.