How China’s census offers clues to its next policy moves
- Beijing’s regulatory moves are sound policy responses to its demographic and economic challenges, though they could be better communicated and the business sector given some lead time to adapt
- Changes in China’s demographic quantity, structure, quality and distribution will continue to direct policy measures and their business implications
Regulations for extracurricular education were clearly promulgated to reduce education costs and improve the fertility rate. As a result, publicly listed education companies suffered significant losses of market value.
In a mature market economy, it often takes months or even years to react to socio-economic issues with relevant policy changes, especially when legislation is involved. However, China usually acts much more quickly.
This is a big advantage when it comes to dealing with emergencies such as the Covid-19 pandemic. But for the business sector, it often means a lack of lead time to adapt to new policy measures.
The plunges in Chinese education stocks might be just one of many cases of the census making a direct or indirect impact on the business sector. So, what are the other key issues revealed? What types of policy measures might be implemented?
In comparison, according to the World Bank, fertility rates for the world, European Union and low- and middle-income countries were 2.4, 1.5, and 2.5 respectively in 2019.
People aged 65 and above accounted for 13.5 per cent of the population, 7.5 percentage points higher than in other developing countries. The working age population peaked in 2010 and the total population is expected to peak in 2025.
So, what might be the policy measures and business implications in four respects, with regard to demographic quantity, structure, quality and distribution?
Chinese-style advocacy should also be applied. Additionally, attracting immigrants may be one way to boost population growth, although the impact may be very limited on a country with a population of 1.4 billion.
The export competitiveness of labour-intensive manufacturing industries would continue to decline, resulting in weakening foreign demand. A declining population also weakens China’s economic advantage by reducing demand for infrastructure and therefore investment.
Ultimately, the investment-driven growth model might be transformed and weaken investment demand. It would also affect consumption since population ageing would depress consumption demand. Increasing investment to improve the quality of education and training can offset the disadvantages of population declining.
The government, the market (enterprises), society (households) and education institutions should coordinate and invest more in education. Ultimately, this would boost technology and increase productivity continuously, thus enabling China to develop a high-quality and innovation-driven economy.
China’s urbanisation will enter a new era, and its demographic distribution will better serve the development of the market economy.
China should also avoid imposing uniformity in all cases when issuing regulations. Otherwise, let markets play a decisive role in resource allocation would just become slogan.
G. Bin Zhao is a senior economist at PricewaterhouseCoopers China and he also leads the firm’s China strategic research. The opinions expressed here are the author’s own