China's Demographic Dilemma

20 Oct 2010

Since the 1950s demographic change has impacted not only China’s economic development, but also its social and political stability. Today, the rate of natural increase in China is only one-third of the average for less developed countries, with projections showing that by 2050 India will overtake China as the most populous country on earth.

The newest and most pressing demographic challenge is the changing age profile of China’s population. The growing elderly population – from seven percent to 8.5 percent since 2000 – has taken the number of over 65s to more than 133 million, according to the National Committee on Aging Projections 2008. By 2050 this figure will have reached well over 300 million, with the elderly accounting for around one-fifth of the total population.

An aging population

So far, the challenge posed by aging has been relatively mild, although in Shanghai it is already sufficiently strong to have caused the municipal authorities to external pagerelax urban family planning rules and to encourage families to have a second child. In terms of the social and economic challenges it faces as a result of an aging population, Shanghai is a microcosm of many other large Chinese cities, where its solution to the problem will likely be copied in the coming years.

More generally, the accelerating aging of China’s population will dominate demographics throughout urban and rural China in the next two or three decades. As this process makes itself felt, the burden of maintaining GDP growth and providing for the economic and social needs of increasing numbers of elderly, will grow more onerous. This burden will be all the greater, given that the workforce itself will be contracting, average per capita GDP will remain quite low and the elderly will live longer.

A few numbers throw these findings into stark relief. Since the early 1980s, the annual rate of growth of the working-age population (15-65 year olds) has been around 1.7 percent, according to the National Bureau of Statistics – though significantly less in cities, highlighting the critical importance of rural-urban migration to meet urban manpower needs.

This rate of expansion has been slowing, however, and authoritative projections indicate that by as early as 2016 China’s working-age population will peak and thereafter experience sustained contraction. As this happens, the average age of members of the labor force will rise, generating a potentially serious tension between the reality of having to rely on an older (and less well-educated) work force and the aspiration of creating a better-educated (and younger) workforce to help fulfil China’s goal of moving up the value-added ladder and becoming a high-tech economy.

The financial challenge

The rise in the number of elderly people also threatens to undermine the fulfillment of these same macro goals by directing government spending toward non-productive, demographic investment. In recent years accelerated population aging in many parts of the world has incurred a huge financial burden associated with funding the social welfare requirements – above all, soaring health costs – imposed by the elderly.

Even allowing for contributions from employers and employees, meeting this burden entails unavoidable and heavy financial demands on governments. Several academic sources have suggested that the cost of treating obesity-related heart disease and diabetes among the elderly in China could approach nine percent of GDP by the mid-2020s. For a country as large and as poor as China, such demands may become a severe drain on resources. In short, unlike developed countries, where economic development has preceded population aging, the government in Beijing will have to accommodate the demands of the elderly in circumstances in which their numbers are growing at an unprecedented pace and at a time when its economy is still not fully mature.

The scale of the financial challenge that the Chinese government faces is suggested in the finding that despite recent initiatives (most notably, the introduction of a rural cooperative medical scheme), health insurance coverage remains inadequate, especially in the countryside and particularly among the poor. In both villages and cities, no more than a quarter of households currently enjoy health insurance coverage, and this figure is set to rise in the coming years. With a rural population, which, says the National Bureau of Statistics, is still over 700 million strong, it will be many years before such coverage becomes universal.

Chasing a moving target?

The attempt to put in place effective social insurance coverage for the elderly may be likened to chasing a moving target. Not only is the number of elderly rising rapidly, but changes are also taking place in the age composition of the over-65s, as more and more of them survive longer. Since 2000 the cohort of over-80s (the “oldest-old”) has already risen from 12 million to more than 20 million (an average rate of growth of around five percent per annum,) and this figure is expected to increase to more than 40 million by 2030 – and to an astonishing 100 million or more by mid-century, according to the US Population Reference Bureau. Such changes have profound implications, not just because increased longevity effectively augments the size of the elderly population, but also because the increased susceptibility to disease rises as people get older, therefore increasing the burden on health care provision and costs.

There is also an important institutional dimension to these developments. It has traditionally been the responsibility of women in China, especially daughters-in-law, to care for the old. In the absence of state funds that can provide comprehensively for all the needs of the elderly, a heavy burden will rest on the millions of single children – the products of the one-child policy – who find themselves having to care not only for their two parents, but often also for four grandparents (hence, the ‘4-2-1- problem’.) This role will, however, be increasingly difficult to fulfil in the future, not least because of the highly unbalanced gender ratio of the population. Not only has the skewed sex ratio given rise to a growing shortage of daughters-in-law, but increasing labor force participation by women has also taken its toll on informal provision of long-term care. The empowerment of urban youth and many young rural migrants, facilitated by almost 30 years of market-orientated reforms, has therefore also served to distance young people from older generations.

Changing patterns of consumption

An aspect of the changing age structure of China’s population that remains under-researched is its impact on patterns of demand and consumption. If income growth has been the main determinant of consumer demand in recent years, the changing age structure has also been a shaping factor. In the wake of the one-child policy, the most privileged consumer group to have emerged in China in recent years has been young urban adults, who have acquired the consumer aspirations to match the highly disposable incomes which they have come to enjoy.

But China’s elderly are also set to become an increasingly important market force in the coming years. The importance of this group as a source of demand has been widely recognized in developed countries, but has received much less attention in China. Although in the short term China’s elderly are unlikely to emulate the lifestyles and consumption patterns of their counterparts in developed countries, in the longer term, as social welfare coverage expands, they will become a more significant source of consumption demand.

Future prospects

One of the ironies of the demographic challenges highlighted in this essay is that so many of them are the product of the very policy – the one-child policy – without which (according to official Chinese sources) some 400 million more births would have occurred. Some demographers have argued that a ‘two-child policy’ would have achieved much the same outcome, if only couples could have been persuaded to delay child-bearing until much later and spaced the births with a four-year interval between them. Implicit in this argument is the belief that some of China’s current demographic problems would have been avoided, had the Chinese government followed this alternative path. Given the control mechanisms available to Beijing, this counter-thesis is a persuasive one.  Such speculation is, however, redundant. The reality is that the challenges posed by the changing age structure of China’s population are complex, far-reaching and profound. Meeting them will require imagination and commitment by future governments in Beijing.
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