The unique factors contributing to China’s current dilemma

While hardly the only country facing the challenge of ‘greying’—the relative increase in the average age of citizens—China is doing so with a series of unique characteristics that separate it from the other ageing populations of the world. Jacob Gunter, Policy and Communications Manager with the European Chamber, explains how the ongoing greying of the population ultimately stems from a history of state-directed population growth followed by the natural changes in birth rates that come with economic development.

Shortly after the People’s Republic of China was founded in 1949, birth rates soared due to increased economic stability deriving from land reform, as well as strong encouragement from the government to have large families. With the exception of the disastrous Great Leap Forward and the ensuing dive in population growth, birth encouragement was the norm until 1970. This created an artificially large boom of children not entirely unlike those in the post-war United States and Europe, but at a magnitude that had not been seen before.

Entering the ‘70s, the government began a ‘two-child policy’ that only offered government support to up to two children per household. Despite not being implemented very strictly, it still pulled birth rates down significantly until the sudden imposition of the ‘one-child policy’ brought about new and unique effects. While also not universally enforced, the one-child policy forced Chinese birth rates down considerably lower than those in countries that were significantly further along in their economic development.

The ensuing low rate seriously affected how the normal trend of birth rates steadily dropping as a country develops manifested itself in China. Normally, most countries go through a slow shift during which children go from being an economic asset for families (generally in rural, agriculturally dominated markets that put children to work in the fields) to an economic liability (generally in urban, industrial markets where heavy demands on education prevent children from contributing to the economy until adulthood). This trend, which naturally drives lower birthrates and steadily greys the population, was rushed by the one-child policy, depriving China of the staggered impacts of ageing.

In the accompanying chart, we can see that China’s fertility rate plummeted compared to other Asian countries that had been at similar rates in 1960. More-prosperous Malaysia and less-wealthy Indonesia and Vietnam all saw steadier decreases in birth rates, which also settled down at higher rates than China’s today. This drove the significant gap (shaded in the chart) between China’s fertility rate and the others, and that is where the more impactful greying that China is beginning to experience is derived from.

This greying is driving major economic and social challenges. The most obvious is the cost of mass retirement of China’s baby-boomers. China retains a relatively low retirement age (55 for women and 60 for men), which may have been bearable in previous decades when life expectancy was lower. The miracles of modern medicine and improved access to it in China has done indisputable good for longevity and quality of life, but the challenges that this brings to retirement pensions and the social safety net are considerable.

Tacked onto this is the ‘4-2-1 family’ problem; four grandparents and one child being supported by two parents. Historically, taking care of retired individuals was the responsibility of their children. If that cost was divided between five children, then each one only bears a fifth of the overall burden. In today’s China, many pairs of parents rely on only a single child to provide for them in retirement. When the single child combines this responsibility with their spouses’ parents and their own child, the 4-2-1 family comes into existence.

China also has a heavily fragmented pension/social security system in which local economic activity contributes to local funds for the retired to draw from. That’s great news if you are a pensioner in Guangdong, which enjoys heavy migration and has 9.7 workers per retiree. At the other end of the scale are provinces like Liaoning, in China’s rustbelt, which has seen an exodus of young workers over the last few decades that resulted in a mere 1.8 workers per retiree.

From the perspective of the government, these issues present an immense challenge. Birth rates are not easily moved (just ask countries as diverse as Japan, Russia, and Spain that face the same problem), but even if birth rates could be directed, it takes at least two decades before the impact becomes obvious. In that intervening period, they increase the burden on productive economic actors through child-rearing and educational costs.

How can China surmount this challenge? A variety of levers exist for the government to pull, but each comes with a cost.

Countries like the UK, France and the USA have mitigated their greying populations through immigration, but China may find this politically contentious, just as those same western countries have seen political backlashes against migrants in recent years.

Increasing labour participation is also an option. This chiefly translates into bringing stay-at-home parents into the labour force, which demands better access to affordable daycare that’s also trustworthy, something recent kindergarten scandals in China have not helped with.

Extending labour participation is another option by raising retirement ages, something that many other countries have struggled with politically.

Greater productivity per worker can also help fill this gap, but this is not something that can be magically achieved at the snap of the authorities’ fingers.

China will also need to consider a unified national pension system to balance disparities between older left-behind regions and the relatively new economic hubs that younger citizens flock to.