In a recent announcement, China revealed a notable decline in its population, dropping from 1.4118 to 1.4097 billion people in 2023. Projections from the United Nations paint a picture of further decline, forecasting a population dip to 1.313 billion by 2050 and a staggering decrease to about 800 million by 2100. This demographic shift is not merely a statistic; it carries profound implications that extend far beyond China’s borders.
Understanding the Drivers of Change
Two significant trends underscore this demographic transformation. Firstly, China grapples with an ageing population, with the percentage of individuals aged 60 and older already surpassing 20% of the total population. Secondly, birth rates have plummeted significantly, plummeting from 17.86 million births in 2016 to 9.02 million in 2023. These intertwined demographic shifts pave the way for several interrelated economic consequences that could ripple through China’s economic landscape and resonate globally.
Navigating Economic Challenges
By 2040, over one-quarter of China’s population is projected to be over 60 years old, resulting in a less economically active populace. This demographic reality places strain on China’s pension and elderly care systems, with predictions suggesting that the pension system could face bankruptcy by 2035. To avert pension-related crises and avoid straining public resources, potential scenarios include raising the retirement age, increasing taxes, or reducing current benefits.
Economic implications extend beyond pension systems. Changes in the healthcare system to accommodate population shifts could lead to reduced services, leaving many feeling discontent or economically disadvantaged. Such dissatisfaction could fuel political instability, further complicating economic management.
Moreover, as the dependency of the elderly on their children rises, household consumption, savings, and investment levels are likely to decline. This downward trend in economic activity could hamper overall economic health and vitality.
Impact on Labour Force and Productivity
As older workers retire, the labour force shrinks, presenting challenges to sustained economic growth. Measures to encourage older individuals to work longer may become crucial for maintaining GDP per capita levels. However, such measures could face political resistance despite their economic necessity.
Furthermore, productivity gains may suffer as the workforce ages. Studies suggest that labour productivity tends to peak between the ages of 30 and 40 before declining, impacting overall economic output. The ageing population could stifle innovation and entrepreneurship, vital drivers of economic growth, and living standards.
Global Repercussions
China’s economic slowdown reverberates globally. As the world’s second-largest economy and importer, any downturn in China’s economic growth has widespread implications. Reduced Chinese productivity could lead to decreased demand for exports from trading partners like Brazil and South Africa, resulting in lower employment levels in these countries. Additionally, emerging economies reliant on Chinese outbound tourism, such as Thailand and Vietnam, may experience downturns in tourism-related sectors.
Moreover, multinational corporations heavily reliant on the Chinese consumer market may see demand plummet, affecting revenue streams worldwide. The ripple effects of a sharp economic slowdown in China could trigger a global economic downturn, as emphasized by recent OECD reports.
Navigating a Changing Economic Landscape
China’s demographic shift underscores the interconnectedness of global economies and the need for proactive strategies to address demographic challenges. Mitigating economic risks requires innovative policy responses that balance demographic realities with sustainable economic growth. As China navigates these demographic shifts, stakeholders worldwide must adapt to evolving economic landscapes and collaborate to foster resilient and inclusive economic systems on a global scale.