China’s population is declining, and the changing demographic structure will ultimately harm the economy, leading to a decrease in labor force and putting pressure on fiscal policies.
Darren Tay, the Asia country risk manager at research company BMI Country Risk & Industry Research, stated in an interview with CNBC in June, “Over the next decade, China’s working-age population will rapidly decline, imposing a drag of 1% reduction in GDP growth annually over the next decade.” This conclusion was based on the world population data released by the United Nations.
A report by the Economist Intelligence Unit (EIU) in January also warned that “the fiscal pressure brought about by aging in (China) is direct and worrisome.”
“The economic growth hinges on productivity, capital accumulation, and labor force input. The negative effects of unfavorable demographic structure will mainly manifest in the decrease of labor force,” the report said.
Economist at the EIU, Xu Tianchen, told CNBC that China’s decline in fertility rate is faster than other regions such as South Korea and Japan.
He mentioned that these three Asian countries are severely affected by rapid aging of the population, showing a “strong inverse relationship” between living standards and fertility rates.
Xu Tianchen pointed out that China’s social welfare system is also “lagging behind,” with government subsidies for childbirth being relatively low compared to international standards.
Moreover, the high cost of housing is also a significant factor affecting fertility rates.
Xu Tianchen stated, “The government is basically unable to manage the steeply rising housing costs.” He noted that as housing costs increase, people find it increasingly difficult to afford homes, thus delaying their plans to have children.
“In Asian countries, people have a deep-rooted tendency to work long hours,” Xu Tianchen said. “This is particularly true in China, Korea, and other regions of East Asia and Southeast Asia.”
He added, “These countries have the longest total working hours in the world,” indicating that the average worker has limited time to devote to family care.
BMI’s Tay pointed out that the rising cost of childcare is also a deterrent for young people to have children.
“As the economy develops, economic participants need to have more skills, hence the investment required for each child will also increase accordingly,” he said.
With a decreasing labor force and declining fertility rates, pressures are mounting on the economy and the entire society.
According to data from China’s National Bureau of Statistics, in 2023, the population of China dropped for the second consecutive year to 1.409 billion, a decrease of 2.08 million compared to the previous year.
This official data shows a much larger decline in population compared to 2022 (850,000). This is also the first year since the early 1960s, following the Great Famine, where the official reports of deaths by the Chinese Communist Party exceeded the number of births.
The official Chinese Communist Party data has been suspected of underreporting or intentionally misleading information, making the actual population figures uncertain.
Even so, at the current rate of decline, it is estimated that by 2050, China’s population will decrease to 1.317 billion, and by 2100, it could reduce by nearly half, to 732 million.
Tay from BMI remarked: “A country’s birth rate will translate into growth in its working-age population over the next two decades.”
He explained that the decline in fertility rates will affect the old-age dependency ratio (the average number of young labor force supporting one elderly person), which could burden a country’s healthcare and pension systems significantly.
Ultimately, the burden on the younger generation will increase as they will not only need to care for their own children but also for their elderly parents.
He expressed that the demographic changes in some Asian regions are a structural issue, requiring governments to make “firm and comprehensive efforts” in fiscal and monetary policies.