China’s demographic time-bomb is ticking faster

The latest warning was stark – that China’s population will shrink this year, more than a decade faster than forecast, and the country will become a ‘super-aged’ society by 2035. The economic implications will be a ‘huge thing’.

This came not from what Beijing has dismissed as ‘western doomsayers’, but from Zheng Bingwen, director of the Center for International Social Security Studies at the Chinese Academy of Social Sciences, and one of China’s most respected observers of population trends. He said the ratio of pensioners to workers will rise to 25 per cent in 2030, is expected to exceed 43 per cent in 2050, and is happening much faster compared with other countries. He warned that the declining workforce will hit savings and investment and that China’s welfare system is unable to cope.

Bingwen was speaking at a Tsinghua University financial forum, alongside speakers promoting private pensions and commercial insurance, so he was no doubt telling his audience what they wanted to hear. But he was still remarkably candid, with no attempt to sugar-coat the slowest population growth since the famine of 1959 to 1961.

Other trends are deepening the gloom. The number of marriages in China has halved over the last seven years, which indicates extremely low birth rates ahead. People are getting married later, and divorce rates are soaring. In the short term Covid-19 and the uncertainly resulting from China’s zero-Covid strategy is expected to further dampen marriage and fertility rates.

Historically, as societies become richer, birth rates decline, and Communist party officials are quick to draw parallels with the likes of Japan, South Korea, Denmark and Sweden, which have managed sharp falls in their own rates. It is true that demographics are not destiny – Japan has achieved modest growth with a falling working age population and its per capita growth rate in recent years has been higher than that of the US.

In an angry editorial, the communist party’s Global Times accused western commentators of ‘badmouthing’ China’s economy by exaggerating the impact of the collapsing birth rate. It claimed the country was following these global trends, and would innovate its way through the challenge of fewer young workers. ‘In the process of digitisation of the Chinese economy, the country will find more new growth points and driving forces other than the demographic dividend,’ it asserted.

But unlike other countries, China’s problems are largely self-inflicted – a legacy of the one-child policy that was brutally enforced until 2015. The policy spawned a vast, corrupt and zealous bureaucracy, which ruthlessly imposed the law, often through forced abortion and sterilisation. One impact is a skewed sex ratio because of a traditional preference for boys over girls. Sex-selective abortion was widespread, and by one estimate there are up to 36 million more men than would be expected naturally. The impact of that today is less women of child-bearing age, and the widespread trafficking of brides from poorer neighbouring countries to China.

The cost of raising children, from education and housing to child care, is another disincentive. The authorities have proposed reducing the burden by providing monthly subsidies to families with more than one child and providing free child care for the third child in every household – so far to no avail. More and more young Chinese are going childless as a lifestyle choice. Smaller households are becoming the norm.

Broader social reforms might help, such as raising the social status of women, and encouraging their greater participation in the workplace. But women face routine discrimination, and the Communist party’s suppression of the country’s MeToo movement does not suggest that change is imminent. China also has a poor record in welcoming migrants, another route to easing the pressure.

In the industrial, heartland of southern China, companies are accelerating the installations of industrial robots because they cannot get enough young workers and labour costs are soaring. The authorities talk of moving from an economic model reliant on plentiful cheap labour to one driven by innovation.

There are no easy fixes, and that is hard to accept by a government used to operating by diktat. China’s demographic time bomb is ticking faster – by most measures China’s population challenges are the most urgent and severe in the world. The tremendous pressure on the country’s overwhelmed hospitals and underfunded pension system is already beginning to tell.

Certainly the economics of demography are complicated, a plunging birth rate does not predestine economic strain. Perhaps China will innovate its way through as the CCP claims. The success of Xi Jinping’s much vaunted Chinese dream of rejuvenation and prosperity may depend on that belief.