Worse than Japan: how China’s looming demographic crisis will doom its economic dream

  • Yi Fuxian says a look at China’s ratio of working-age population to the elderly is ominously similar to Japan’s in the early 1990s, boding ill for the Chinese dream and the global economy as a whole
PUBLISHED : Friday, 04 January, 2019, 1:30am
UPDATED : Friday, 04 January, 2019, 5:59am

China first began to promote population control in 1973 and introduced its one-child policy in 1980. As a result, its total fertility rate, or births per woman, dropped from 4.54 in 1973 to 2.29 in 1989, then to 1.22 in 2000 and 1.05 (then the lowest in the world) in 2015.

Japan’s low fertility rate triggered an economic crisis in the 1990s. By 1992, Japan’s median age had increased to 38.5 (China hit that figure in 2016), while its old-age dependency ratio – the number of people aged 65-plus per 20- to 64-year-olds – increased to 18 per cent (China is predicted to hit that figure by 2023).

Meanwhile, Japan’s ageing index (those over 65 per 100 people aged under 15) increased to 76 per cent (2018 for China), and the proportion of people aged 15-39 fell to 35 per cent (2020 for China). Japan’s labour force began to decline in 1996 (2014 for China). Therefore, China's demographic structure is similar to that of Japan in 1992, and it may be experiencing an economic crisis similar to that of Japan in the 1990s.

Japan’s economic crisis was essentially a demographic crisis. The decline in young people in the labour force has led to a shortage in manufacturing: the workforce employed in industry decreased from 22.9 million in 1992 to 17 million in 2017, and the workforce is ageing, leading to a decline in production and innovation. As a result, Japan’s manufacturing exports as a share of the global total declined from 12.5 per cent in 1993 to 5.2 per cent in 2017, and the number of Japanese firms ranked in the Fortune Global 500 fell from 149 in 1994 to 52 in 2018.

In any society, an increase in the number of elderly leads to a drop in savings, and a decrease in the labour force leads to a decline in return on investment, which reduces the investment rate. From 1991 to 2016, Japan’s savings rate fell from 35.7 per cent to 24.5 per cent, and the investment rate fell from 34.2 per cent to 23.6 per cent.

China birth numbers expected to fall to lowest level since 2000

The increase in the number of elderly also leads to a rise in medical and social security expenses, thereby increasing government debt. As a share of GDP, Japan’s public health expenditure increased from 4.4 per cent in 1990 to 8.6 per cent in 2014, public spending on pensions rose from 4.9 per cent in 1991 to 10.2 per cent in 2013, and the general government debt increased from 63 per cent in 1991 to 236 per cent in 2016.

Since 2000, China’s total fertility rate has been lower than that of Japan. The average in 2010-2016 was 1.18 in China and 1.42 in Japan. This means China's ageing crisis will be more severe than Japan’s, and its economic outlook bleaker.

How China’s ageing will narrow income gaps in West

I believe China will finally abandon its population control policies in 2019, but it is very hard to boost fertility. The average fertility rates in Taiwan, Hong Kong, Macau and Singapore from 2005 to 2017 were 1.10, 1.12, 1.08 and 1.23 respectively.

These areas all fall within China’s cultural sphere. In these economies, cultural influence has been offset by the modern lifestyle. China, meanwhile, has been hit by two further blows: the one-child policy has changed Chinese childbearing attitudes and distorted moral values about life; and, the economy, social environment, education and almost everything else relates back to the one-child policy. Having just one child or no children has become the social norm in China.

Northeast China – Heilongjiang, Liaoning and Jilin provinces – has a population of about 109 million, and its socio-educational level is several years ahead of the country average. The fertility rate in northeast China was only 0.9 in 2000 and 0.56 in 2015. This means that the next-generation population in this region is only a quarter the size of the last generation. Northeast China has also been hardest hit economically. Similarly, in the rest of China, the fertility rate and economy may continue to decline.

‘Silver’ population must remain a significant part of the workforce

If China can stabilise its total fertility rate at 1.2, the total population will fall to around 1.07 billion by 2050 and 480 million by 2100. This decline will be accompanied by an ageing population structure. The proportion of the population aged 65 and over will rise from 10 per cent in 2015 to 32.6 per cent by 2050. In comparison, the proportion of those 65 and over in the US will rise from 14.6 per cent in 2015 to 23.2 per cent in 2050. In India, the proportion aged over 65 will increase from 5.6 per cent to 14.2 per cent by 2050.

The size of China’s labour force is rapidly declining, while its elderly population numbers are increasing dramatically. In 2015, China had 6.9 workers aged 20-64 supporting one senior citizen aged 65 or above (most women retire in their 50s) and there is already a social security shortfall. The ratio will continue to decline, to 3.6 workers in 2030 and 1.7 in 2050. No social security net, no family security and a pensions crisis will evolve into a humanitarian catastrophe. As women live six to seven years longer than men on average (and are usually a few years younger than their husbands), they will be the main victims of population control.

How two Japanese towns illustrate challenges of ageing population

The younger a nation’s population structure, the stronger its vitality for economic innovation, so in many ways the median age reflects economic vitality. China’s median age was 22 in 1980. By 2018, it was 40. That will rise to 46 in 2030 and 56 in 2050. In the US, the median age was 30 in 1980 and 38 in 2018. In 2030, it will be 40, and 44 in 2050. India, by comparison, had a median age of 20 in 1980 and 28 in 2018. By 2030, it will be 32, and 40 in 2050.

In the past, young China tried to catch up with middle-aged America, and the economic gap shrank. In the future, the economic gap between elderly China and middle-aged US will again widen. From this, we can say that the US economy will not be overtaken by China but, rather, by India. China’s economic vitality will continue to decline, which will have a disastrous impact on the global economy.

Yi Fuxian is a senior scientist at the University of Wisconsin-Madison and author of Big Country with an Empty Nest