➡️China’s Demographic Crisis: Smaller, Older Population Could Spur Global Slowdown
– China has announced that in 2023 its population declined from 1.4118 to 1.4097 billion people. Forecasting by the United Nations suggests China’s population will dip to 1.313 billion by 2050 and then down to about 800 million by 2100. This is a significant change and will have ramifications well beyond its borders.
There are two trends that underline such a demographic shift. First is the aging population, with the percentage of those 60 and older above 20% of the total population. Second, birth rates have dropped significantly, from 17.86 million births in 2016 to 9.02 million in 2023. Several interrelated economic consequences of such shifts could emerge, which ultimately can affect China’s economic well-being in the mid to long term and resonate globally.
More than one-quarter of China’s population will be over 60 by 2040 and so less economically active (retirement age for men is 60 and for women it’s 50-55). This will put pressure on China’s pension and elderly care systems with some predictions indicating that the pension system could be bankrupt by 2035.
To avoid pension-related issues straining public resources, possible scenarios include raising the retirement age to get people to work for longer, increasing taxes to cover additional pension requirements and shrinking current benefits.
Changes in the healthcare system to cope with population changes could leave many people feeling less well off or unhappy with services being reduced. This in turn could result in some degree of political instability.
In addition, as the dependency of the elderly on their children increases, household consumption, savings and investment levels are likely to decline, which in turns negatively affects the overall health of the economy.
Labor force reductions
As older workers retire, there will be fewer people of working age in the total population, and therefore available to work. Taking measures to help older people continue to work for longer, for example, could become fundamental to long-term economic growth and to sustain the levels of GDP per capita. Nevertheless, as pointed out above, such measures could be politically unpopular.
Productivity gains (GDP per employed person) may also be affected by a reduced workforce, and one that is getting older. Some studies find evidence that labor productivity (output per working hour) varies with age. It tends to increase as a person enters the labor market, then plateaus between 30 and 40, and eventually declines as an individual’s work life comes to an end.
Population shifts can lead to a “doom loop,” where one economic situation creates a negative impact and then another and another. As lower productivity begins to affect production in particular sectors, China may be compelled to increase imports to satisfy demand in those industries.
