Population decline will shrink ‘China’s century’

Soaring labor costs threaten to force manufacturers to switch to countries such as Vietnam

The world’s biggest nation is about to shrink.

China accounts for more than one-sixth of the world’s population.

Yet after four extraordinary decades in which the country’s population has swelled from 660 million to 1.4 billion, the landscape is changing. For the first time since the great famine of 1959-1961, the population is projected to fall this year.

According to the latest figures from the National Bureau of Statistics, China’s population grew from 1.41212 billion to just 1.41260 billion in 2021 – a record low increase of just 480,000 or a mere fraction of the annual growth of eight million or so common a decade ago.

While a reluctance to have children in the face of strict anti-Covid-19 measures might have contributed to the slowdown in births, it has been coming for years.

China’s total fertility rate, or births per woman, was 2.6 in the late 1980s – well above the 2.1 needed to replace deaths. It has been between 1.6 and 1.7 since 1994 and slipped to 1.3 in 2020 and just 1.15 in 2021.

By way of comparison, in Australia and the United States, the total fertility rate is 1.6 births per woman. In aging Japan, it is 1.3.

State incentives

This has happened despite China abandoning its one-child policy in 2016 and introducing a three-child policy, backed by tax and other incentives, last year.

Theories differ about why Chinese women remain reluctant to have children despite state incentives. One involves having become used to small families. Another is the rising cost of living, as well as late marriages, which delay births and dampen the desire to have children.

In addition, China has fewer women of child-bearing age than might be expected.

Limited to having only one child since 1980, many couples opted for a boy, lifting the sex at a birth ratio from 106 boys for every 100 girls to 120, and in some provinces to 130.

China’s population and projections
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China’s total population grew by a post-famine low of just 0.34 in 1,000 last year.

Projections prepared by a team at the Shanghai Academy of Social Sciences have it falling this year – for the first time post-famine – by 0.49 in a thousand.

The turning point has come a decade sooner than expected.

As recently as 2019, the China Academy of Social Sciences expected the population to peak in 2029, at 1.44 billion.

The 2019 United Nations Population Prospects report expected the peak later still, in 2031-32, at 1.46 billion.

The Shanghai Academy of Social Sciences team predicts an annual average decline of 1.1% after 2021, pushing China’s population down to 587 million in 2100, less than half of what it is today.

Fertility rate

The reasonable assumptions behind that prediction are that China’s total fertility rate slips from 1.15 to 1.1 between now and 2030, and remains there until 2100.

The rapid decline will have a profound impact on China’s economy.

Its working-age population peaked in 2014 and is projected to shrink to less than one-third of that by 2100.

China’s elderly population – aged 65 and above – is expected to continue to climb for most of that time, passing the working-age population near 2080.

This means that while there are 100 working-age people available to support every 20 elderly people, by 2100, 100 working-age Chinese will have to support as many as 120 elderly.

China’s working-age population, 65+ population
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The annual average decline of 1.73% in China’s working-age population sets the scene for much lower economic growth unless productivity advances rapidly.

Higher costs, driven by the rapidly shrinking workforce, are set to push low-margin, labor-intensive manufacturing out of China to labor-abundant countries such as Vietnam, Bangladesh, and India.

Already manufacturing labor costs in China are twice as high as in Vietnam.

At the same time, the country will be required to direct more of its productive resources to the provision of health, medical and aged-care services to meet the demands of an increasingly elderly population.

Modeling by the Centre of Policy Studies at Victoria University suggests that without changes to China’s pension system, its retirement payments will grow five-fold from 4% of GDP in 2020 to 20% of GDP in 2100.

Emerging centers

For resource-exporting nations such as Australia, these changes are likely to require a reorientation of exports towards manufacturers outside China.

For importers of goods including the US, the source of goods is set to gradually shift towards new and emerging centers of manufacturing.

Despite forecasts that this will be “the Chinese century,” these projections suggest influence might move elsewhere – including to neighboring India, whose population is expected to overtake China within this coming decade.

Xiujian Peng is a senior research fellow at Victoria University in Australia.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.