Clock ticks for China's demographic challenge

BEIJING - When it comes to tackling China's aging population, the country's policy makers know time is not on their side.

The sense of urgency is evident in the sweeping reform package released after a four-day Communist Party of China summit that sets the tone for the world's second largest economy over the next decade.

China will loosen its one-child policy by allowing couples to have a second child if at least one of them does not have siblings.

A fragmented pension system will be strengthened by merging pension schemes for urban and rural residents.

Retirement will be delayed in a "progressive manner," a move that will partially alleviate the state's pressure to dole out pensions.

Meanwhile, state-owned companies will double their contribution to public finances to 30 percent of their profit by 2020, as the country finds itself overstretched to meet pension claims from a graying population.

The decision to allow couples to have a second child and major reforms to support an aging population came after demographers' repeated calls for a change in the one-child policy. They argue a declining fertility rate has blunt the labor cost advantage and reduced input to the social security fund.

"The authorities relaxed the one-child policy because they know not doing so would exert overwhelming burden on the economy," said Li Jianmin, a demographer with Nankai University, in Tianjin.

The fertility rate, the number of births for each female, now stands at 1.5 in China. Demographers say expanding it to 1.8 is needed for balanced population development.

POLICY HANGOVER

When China introduced the one-child policy in the late 1970s, it was meant to rein in explosive population growth. However, as people born in the 1950s and 60s begin to retire, the policy is widely considered to be outdated and counter-productive to improving the country's labor force.

A marked effect of the policy is a highly skewed gender ratio. Chinese people, especially those in rural areas, have traditionally preferred boys for inheriting the family's bloodline, labor and supporting aged parents. As a result, China has 117 boys born for every 100 girls, far exceeding a balanced ratio of 107 to 100.

Also, the world's most populous country with 1.3 billion people is facing a graying population. A declining fertility rate has reduced the share of children younger than 15 years old to 16.6 percent of the total population, while pushing up that of people older than 60 to 13.26 percent, statistics from a national census in 2010 show.

Developed economies have all faced similar challenges, but this is particularly disturbing for China, a country that is already seeing signs of a rapidly aging society before it crosses the threshold to become a high-income nation.

This calls into question the country's readiness to care for its growing numbers of senior citizens. As the single child of each family comes of age, most of them find themselves in the middle of an inverted pyramid structure - each couple has to support four parents while raising their own child.

ECONOMIC CALCULUS

"China's population used to provide a cost advantage to compete globally, but it is turning into a liability," said Ba Shusong, a researcher with the Development Research Center of the State Council, a government think tank.

Ba added that China is approaching the Lewis turning point, which marks a watershed from abundant labor supply to a shortage.

If an aging society is not properly addressed it will drag the country into an economic recession currently plaguing the European Union and Japan, researchers warn.

"This is a wake-up call for China, where the population is rapidly aging," said Zhang Monan, a researcher with think tank State Information Center.

Demographic changes have emerged as a factor policy makers cannot afford to ignore when charting economic development in the next decade. According to statistics from the National Bureau of Statistics, China's working population started to fall in 2012.

The shrinking pool of working-age Chinese people is cutting deep into China's traditional advantage in labor cost, which is credited for having fueled the nation's export-oriented growth over the past three decades.

Factories are reporting difficulties in hiring. Some factory managers say each year they have to raise salaries by 10 to 15 percent to hire workers. Multinational firms such as Adidas and Nike have relocated their production bases to southeast Asia, where wages are relatively lower.

Impact is also felt at the consumption end. Labor-intensive manufacturing is pushing up prices of consumer staples from vegetables to clothes.

AGING MORE SLOWLY

Despite the government's all-out efforts to tackle the demographic challenge, experts say these reforms are unlikely to buck the aging trend.

"In the past when we were trying to curb population growth, developed economies were using policy and economic tools to stimulate growth, but to very limited effect," said Yuan Xin, a demographer with Nankai University.

According to Yuan's estimate, China will add 50 million people in the next two to three decades with the relaxed policy in place.

Wang Pei'an, Vice Minister of National Health and Family Planning Commission, said that the total number of couples eligible for giving birth to a second child is low.

He added that with provinces yet to work out their own timetable to ease the one-child policy, China is unlikely to see a baby boom in the near term.

So far the consensus is that these policies will slow down the speed at which China's population ages.

This will give policy makers more time to map out a comprehensive plan to deal with the rising cost of caring for elderly citizens and gear its economy from the labor-intensive model to a high value-added one.

"It takes time for new-borns to enter the labor market," said Zhang Chewei, a demographer with Chinese Academy of Social Sciences. "The ultimate cure for the labor shortage is to develop technology and enhance productivity."