Population woes have changed over the years as China presents an exhibit of how a declining population could pose a socioeconomic impediment in the global race for productivity, investment, and economic ascendency.
China’s population shrank last year. My first instinct was … well, isn’t this a good thing? Through the entire 1960s and 1970s, global discourse revolved around how the world population kept growing beyond the finite resources of this world. And how food scarcity and poverty would create a social and climatic depression.
China, with a population of roughly 1.4 billion people, was specifically a focal point of population reduction strategies.
After the widespread catastrophe of the Great Leap Forward, a debilitating social program orchestrated by Mao Zedong in the late 50s, China’s population was on the up and up in the following decade. Then the infamous ‘One-Child Policy’ was introduced in the late 70s to inhibit the burden of a growing population, and concomitant poverty. Since then, however, China has dynamically transformed into an economic powerhouse – a factory floor for global manufacturing.
Here lies the answer to this population conundrum: Shrinking population in China could be a problem now!
First Time in Decades
According to the data released by the Chinese government, China’s population contracted by circa 850,000 people in 2022; with 9.56 million births against 10.41 million deaths, it was the first time in more than half a century that deaths outnumbered births in China. The initial thought might be to blame it on the pandemic. But that would be a blinkered assumption without stressing upon the stunted birth rate.
In fact, while Chinese officials confirmed for the first time, given the questionable nature of data reported from China, it’s plausible that China’s population already declined in 2021.
This was the sixth consecutive year that the number of births fell, down from 10.6 million in 2021, according to the National Bureau of Statistics. Many demographers and statisticians warned for years about a population decline on the cards, albeit much later in this decade. These warnings were perhaps the reason why the Chinese Communist Party (CCP) government reposed its one-child policy in 2016 and extended the limit to three children in 2021.
Local governments offered tax rebates and outright cash handouts to couples having children. The source of anxiety was partly social and partly economic.
China is a rising economic power, the world’s second-largest economy, and the strongest contender to dethrone American supremacy. But in listing all the superlatives, we sometimes forget that China is still a developing economy. Despite its phenomenal evolution from rampant poverty, its average population still earns less than the average earnings in advanced economies. And the shrinking population could constrict China, like other leading developing economies, into a middle-income trap.
A Two-Pronged Problem
Just by simple inference, we can judge that a declining population is also an aging population.
Impressive modernity in China’s healthcare system has led to an increase in life expectancy. Meanwhile, a decades-long hiatus in birth-conducive policies and modern mores of young Chinese couples, often loath to having children altogether, have led to a sharp decline in births.
A combination of these factors has invited a conspicuous outcome: Shrinkage in China’s working-age population.
China’s working-age population has been in decline since 2015; according to a government spokesman, it could fall to roughly 700 million (approximately 23%) by 2050.
This factor would be particularly problematic for China, which has long been a competitive labor market for global manufacturing heavyweights like Apple and Microsoft. But moreover, a bulging elderly population amidst falling tax receipts could pose a challenge to government finances, especially given the comparably underdeveloped social safety net programs in China.
Therefore, either taxes ought to be raised sharply or state pensions to old-age dependents would hit the skids – a policy dilemma either way.
Expectations Down the Road
We can draw apt comparisons from Japan – the world’s third largest economy – which has notoriously suffered from a lopsided aging population and accompanying anemic economic growth since the asset bubble burst of the 1990s. China’s real estate market does look like a financial crisis just waiting to happen.
Post-boom Japan has tried virtually every bizarre economic strategy – from negative interest rates to yield curve control – yet has failed to spark demand-led inflation. Strangely, however, China has sustained its bustling economy on prohibitive rates of investment rather than consumer demand, which has remained relatively lukewarm due to policymakers’ reluctance to pass the complete scope of economic growth to households.
Nonetheless, a contracting labor force would perhaps accelerate the exodus of manufacturing from China unless the government finds alternatives to sustain China’s unrivaled productivity levels.
Some stopgap policies could arrest the declining labor force and squeeze more productivity. China’s government could raise the official retirement age to stretch the working age population.
One of the major impediments to plateauing birth rates in China is financial burden. Many young Chinese couples cannot afford the high cost of housing and education.
Hence, the authorities could offer housing subsidies to families with children, facilitate generous educational scholarships, and better accommodate female workers to make their jobs secure enough to think about starting a family.
Many Western countries have maintained their productive edge via immigration. Notable examples include Germany and even the United States. Despite relatively low birth rates and an aging average population, both countries have been successful in blunting the brunt of this demographic shift by welcoming immigrants.
However, China’s negative Net Migration Rate tells a totally different story. A story of authoritarianism that is leading to a brain drain – let alone incentivizing foreign workers.
The aggressive nationalism stoked by the CCP regime – and Mr. Xi Jinping, in particular – is no longer an implicit concept. Whether tensions in the South China Sea or military posturing against Taiwan, Chinese national security prioritization has had implications on its relations with the United States and its regional allies. But its economic implications are yet to unravel.
As manufacturing flows back to the United States; Taiwan diversifies toward other export markets; and protectionist hurdles threaten to strangulate the semiconductor industry of China, skewing demography is the least of the concerns imperiling China’s wonder economy. The indications are already surfacing in economic data.
We could theoretically blame China’s ‘zero Covid’ policy for strangling economic growth. It is no surprise that China’s economy grew only by a modest 3% in 2022, its slowest rate in nearly four decades, barring 2020, after the phenomenal post-pandemic rebound. Intermittent lockdowns and pedantic mass testing regimes cast a pall over economic activities. And higher interest rates imposed by the Federal Reserve and other central banks have dampened global demand and diluted appetite for Chinese imports. According to government officials, year-on-year Chinese exports fell by 9.9% in December.
While an economic turnaround is widely expected later this year, a falling working-age population; a skyward old-age dependency ratio; and the ongoing trade tussle with the United States could cost China many more decades to supersede the American edge.
China has been an iridescent success story; an economic miracle of sorts. However, it practically cannot sustain its mouthwatering growth levels without domestic consumption pedaling productivity. Sans its labor competitiveness, international investments would inevitably ebb away to regional hubs like India and Vietnam. And while it will take a confluence of political and economic factors to noticeably falter China, this could very well be a stepping stone of sorts in that direction.
Therefore, if the CCP could somehow prioritize economy over national security; social reforms over governmental control; and collaboration over confrontation, I reckon China can again defy the odds and achieve its dream.
[Photo by 志涛 张, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Syed Zain Abbas Rizvi is a political and economic analyst. He focuses on geopolitical policymaking and international affairs. Rizvi has written extensively on foreign policy, historical crises and economic decision making of Europe and the US.