Population decline won't hold China back

In recent years, a narrative of demographic doom has descended over China. Global economists and political commentators, wielding statistics as weapons to support their own hidden academic or ideological agendas, have pointed out the country's population decline of about 1.5 percent since its peak in 2021 and the ascendancy of India to the top spot in terms of global population rankings.

The National Bureau of Statistics said the country's population now stands at 1.409 billion, with 15.4 percent aged 65 and older. China's shrinking total population and rising graying demographic pose numerous policy challenges that need to be addressed on an urgent basis, as policymakers grapple with issues ranging from falling fertility rates to decisions by many young couples to forgo the skyrocketing expense of raising children, as well as soaring costs of healthcare for an aging population.

While these are serious economic and policy challenges, China is not alone in facing them. Seventeen European nations have seen their population shrink since 2020, even with an influx of immigration from Syria and Africa. Major economic powers such as Japan, Italy, South Korea and the United States are experiencing declining birth rates. Sweden experimented with financial incentives to counteract falling birth rates, to modest effect.

According to the United Nations, the pace of population growth is slowing worldwide, making population aging an irreversible global trend. Among high-income economies and those that strictly limit immigration, this trend is particularly evident.

Two positive factors

Despite a host of serious challenges, China has two major factors in its favor. First, productivity increases historically have provided an economic offset to population decline. If China's economy can continue to boost its productivity levels to counteract a slow, steady population decline, it can mitigate much of the economic effect of the decreasing population. The Economist Intelligence Unit in a 2023 study predicted that while China's labor force will shrink by 12 percent over the next 20 years, its labor productivity will grow by more than 3 percent per year, an enviable figure. The EIU forecasts that China could close the GDP gap with the US because of increased productivity, higher prices for its products, postponed retirement, and improved health and longevity of its citizens.

Second, to some degree, the size of China's working-age population is not as important as the quality of the workers. So China can, once again, offset much of the economic effect of a declining population by creating higher-quality, higher-wage jobs in value-added industries. The moderately prosperous society sought by China's leaders will need to become a bit more prosperous over time so the newer, higher-quality workers can afford to spend more of their larger paychecks on consumer goods to keep the Chinese economy humming.

None of this "economic prosperity dividend" is guaranteed. The global economy will have its cycles, and the Chinese economy is not immune in our interconnected global financial network. But the overall outlook for China's demographic future should not be dismissed as demographic doom and gloom. This closer examination of China's demographic landscape reveals a more nuanced and, potentially, positive outlook if innovators are allowed to have their say and way.

The challenges are daunting. China's birth rate has declined for decades, hastened by the one-child policy (1979-2015). It stood at 6.39 births per 1,000 people in 2023, down from 11.159 births per 1,000 people in just two years. The fertility rate of 1.15 in 2021, down from 2.01 in 1991, is about half the 2.1 level needed to maintain the country's population. It is far below the fertility rate projection of 1.8 for both 2020 and 2030 made by the State Council, China's Cabinet, in 2016, which accompanied estimates of continuing national population growth.

The birth rate has also been affected by the rapid population shift to China's cities, where raising children is more expensive, and by decisions of more young couples to go childless — a decision that again is often an economic one, related to the high costs of housing, education, transportation, healthcare and childcare. Attempts to encourage women to give birth to more children have thus far not yielded significant results.

Talk of a "demographic dividend "depends on both the size of the working-age population and the education level of the population. Despite the declining fertility rate and an aging population, China still has the world's largest labor market. With nearly 900 million individuals of working age, China surpasses the combined working-age populations of all developed countries.

Moreover, China's labor costs remain significantly lower than those in most developed economies, while still offering advantages in experience and efficiencies compared to lower-cost emerging markets. As businesses in the US and Europe contemplate moving some of their manufacturing away from China, they are rediscovering in their research that workers in China's manufacturing sector generally have remained more experienced, better educated and better resourced than their counterparts in competing countries, often leaving the outsourcing companies a choice between cost efficiency and domestic politics.

China also boasts the world's best-educated talent pool in diverse business categories. The country has established the world's largest higher education system. In recent decades, university enrollment in China has surged to a total of 240 million, with the gross higher education enrollment rate reaching nearly 81 percent last year, said the Ministry of Education.

In terms of innovation and entrepreneurial education, Chinese colleges and universities have developed over 30,000 specialized courses and employed 174,000 teachers with professional backgrounds. This reflects a shift from a demographic dividend to a talent dividend. The breadth of China's labor pool means the country's human resources are adaptable to business needs, enabling companies to find experienced workers and technical specialists across a wide range of fields.

Turning silver into gold

Economists have long been concerned that falling fertility rates could reduce the labor force, exacerbate inflation, disrupt the consumer culture that mature economies rely on, and overwhelm government programs designed to support aging populations.

Trying to turn potential negatives into positives during this demographic transition, policymakers have created plans to turn silver into gold, at least metaphorically.

At the beginning of 2024, China introduced a plan for a "silver economy" — a market with significant growth potential estimated to be worth trillions of dollars — aimed at tapping into the spending power of the rising ranks of seniors. This plan caters to a rapidly aging population with services including meal deliveries, nursing homes and evolving entertainment options.

While the aging population poses significant challenges to the country's healthcare system, economy and society, long-term planning and comprehensive policy measures can address these issues.

Almost every country in the world will see population shrink during the rest of this century, according to UN projections. So it is the quality of each nation's planning, and the clear-eyed recognition of the problems and potential solutions, that will determine who will succeed and who will struggle.

By prioritizing elder wellness through healthcare reform, sustainable retirement and pension planning, the expansion of social services and continuing productivity growth, China can progress during its demographic transition. An aging population is not necessarily an economic disaster. With prudent solutions continually implemented over time, China remains positioned to overcome these challenges in the coming decades of a growing gray demographic.

The writer is co-director of the Global Business Journalism Program at Tsinghua University and former president of the National Press Club in Washington.

The views don't necessarily reflect those of China Daily.