China’s Demographic Challenges
Wed Oct 04 2023
One theory of European history attributes population decline from the black plague in the 13th century as the reason Europeans experienced improved conditions for workers and ended the feudal system. Over four years, the plague wiped out 40-50% of the European population. According to this theory, fewer workers meant more bargaining power for the workers and more natural resources available for the same group of people.
China enacted the one-child policy in 1980. This created an environment of a rapidly aging population, gender imbalance, and population decline.
Chinese population is expected to fall by 200 million by 2050. The population decrease differs from the European example because decades of low birth rates create a rapidly aging median population. China’s median age of 38.42 in 2020 surpassed that of the United States. This is not out of line with other countries. Japan’s median age is 48.4, making it the world’s oldest.
The one-child policy worsened the existing preference for boys in rural China. There are currently 30 million more men than women in China, which is 2% of the population. India, by comparison, has 37 million more men than women. Chinese officials worry about social instability and loss of economic output due to depression in men. Competition for women also leads to overheating residential real estate as generations of family members pour money into buying a house for their male offspring.
China’s public pension program is 5.2% of it’s GDP in 2022. In 2021, China’s pension program reported a deficit for the first time. The National Social Security Fund would likely be depleted by 2035. To tackle these problems, pension programs in some regions began to reduce medical benefits, and China has raised the retirement age to 60 for men and 55 for women. For comparison, the US retirement age is 66. China has room to adjust its pension program to more sustainable levels. The government in China has the political power to push for the reduction of social services and an increase in the retirement age (even if highly unpopular). The cost of living in China is lower than in developed countries, allowing China to meet the demands of social services more easily.
In a representative government, an aging population creates misaligned incentives where the old and less productive members of society push for conservative policies that maintain the status quo rather than create innovation. The younger, more productive members of society become marginalized, and productivity drops further. We already see examples with the “lie flat” movement. The younger population is disillusioned by the current economic setup.
The Chinese government has been assertive on the world stage, using its position as the 2nd largest economy to push its agenda in the form of Belt and Road and militarily securing the South China Sea. This puts China increasingly in direct competition with the United States and countries in Southeast Asia.
Considering the extreme nature of the one-child policy, China’s demographics are surprisingly similar to its peers in India, South Korea, and Japan. China’s fertility rate as of 2021 is 1.15. South Korea is at 0.81, Japan is at 1.30, and India is at 2.05. China’s median population age is also within range of the United States despite the US’s greater share of immigration. What makes China different is the unique combination of low fertility rate, gender imbalance, and quickly aging population.
China’s government imposed lockdowns during COVID against the will of its citizens. It wields an incredible amount of power in China. It can reduce social benefits to maintain stable social security payments and crack down on social instability caused by gender imbalance. But whether or not it can encourage the young to continue innovating its economy is yet to be seen.