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Most countries that grow old are fortunate enough to grow rich first. A graying Japan lives well off investments made during its most recent prime, and is likely to remain a global economic power for many years to come. China reverses this sequence: it’s about to get old before it gets rich. After four decades of restrictive family planning policies, the latest census may show its population is already shrinking. Will China’s rapid ascent to superpower status now also wilt? Some argue that in a new age of technology, worries about demographics are overblown. Napoleon’s conquests may have been enabled by an 18th Century population boom, writes Financial Times columnist Gideon Rachman, but in the 21st century, technological prowess rather than battlefield numbers will determine national strength. In that sense, China—with its leading-edge capabilities in areas like artificial intelligence—is well placed.  A screen demonstrates facial-recognition technology at the World Artificial Intelligence Conference in Shanghai in 2019. Photographer: Qilai Shen/Bloomberg This week in the New Economy
Such arguments miss a critical point, however. Population size isn’t the main issue; composition also matters. China’s rise is likely to be thrown off by a massive age imbalance. By 2050, one in three Chinese will be over 60, a cohort of seniors so enormous that if they formed a country, its population would be comparable to America today. Over the same period, China will go from having eight workers for each retiree down to two, turning a healthy pyramid-shaped population structure into a rectangle. The Chinese Academy of Social Sciences warns that China’s main pension fund could run out of money by 2035. Fewer working-age adults (who have a propensity to save) and more retirees (who tend to spend) will deplete the supply of household savings that can be mobilized for investment. “Understand this,” wrote researchers at the People’s Bank of China recently, “without [capital] accumulation, there is no growth.” If you think China’s debt burden is worrisome now—the country’s debt-to-GDP ratio exploded from less than 150% in 2008 to almost 300% today—it’s about to get much worse, just as it did in Japan. Innovation and entrepreneurship may suffer, too. Younger populations are more inventive. James Liang, an economist and co-founder of China’s leading online travel agency Trip.com Group Ltd., said he worries about China’s shrinking talent pool. “In simple terms, the more people you have, the more research scientists and engineers will be available to develop world-leading artificial intelligence technologies to overtake your competitors,” he said.  James Liang Photographer: Qilai Shen/Bloomberg True, technology can offset population loss. There are other relatively simple adjustments China could make, like raising the retirement age. Better education would boost the productivity of existing workers, although that’s a much harder lift (most of the workers who fueled China’s rise come from rural villages and many of them lack even a high school education.) But fixing China’s lopsided age structure is next to impossible: Once a country’s birth rate starts falling, it almost invariably keeps falling—in China’s case, at alarming speed. Liang observes that with the average Chinese family producing 1.2 children, China’s population effectively halves every generation. Given that possibility, you might imagine that the government would abandon all remaining birth control restrictions (it relaxed the One Child family policy in 2015 to allow two children.) But that doesn’t seem to be in the cards. “If they do it in one fell swoop, it’s an admission of error—the fallacy of the policy,” says Mei Fong, the author of “One Child: The Story of China’s Most Radical Experiment.” In fact, even as the government started rolling out birth control policies in the early 1980s, Chinese demographers were pushing back, arguing that China’s population growth would naturally taper off after a Mao-era baby boom as the country grew more prosperous. But they were ignored. A Leninist state reluctant to course-correct, even as it faces a demographic tipping point, invites profound consequences that could endanger its growth, social stability and place in the world. Demography is not destiny, but in China politics are decisive. The fourth annual Bloomberg New Economy Forum will convene the world’s most influential leaders in Singapore on Nov. 16-19 to mobilize behind the effort to build a sustainable and inclusive global economy. Learn more here. |
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