Peak labor - China grows old before growing rich?

China’s workforce is shrinking. The one-child policy is often blamed but there are greater forces at work, finds the latest Allianz Demographic Pulse.
A young performer smiles in a uniform resembling that of a former PLA soldier after a performance .../ Credits: Reuters
According to the latest census, China has a population of around 1.34 billion people, though population growth has nearly halved in the past decade compared to the decade before.

Furthermore, population aging increased further as life expectancy increased and fertility declined not least due to the fact that according to estimates some 400 million fewer children were born as a result of the one-child policy introduced in 1978.

The effects of these developments will start to be felt on the Chinese labor market as early as this decade, particularly as the official retirement age in China is still just 50 or 55 for women and 60 years for men.

Today there are 18 people aged 60 and older for every 100 persons aged 15 to 59. By 2030 this old-age-dependency ratio will deteriorate further, reaching 40 to 100.

If China sticks to its current retirement age, the turning point for China’s labor market will be reached in 2013, according to findings from the recent Allianz Demographic Pulse. Then, the number of 15- to 59-years olds will peak at around 920m people.

Already some employers are complaining of a shortage of workers. According to a survey taken in February of this year, more than two-thirds of all companies in the coastal areas reported problems finding enough workers to fill up all vacancies after the Chinese New Year.

Further wage increases seem inevitable, while Chinese companies have already begun to relocate their labor-intensive production operations to the interior of the country or even to Vietnam, Bangladesh or Cambodia in reaction to rising labor costs in the coastal regions.

One-child policy to blame?

Against this backdrop critics are calling for the one-child policy to be relaxed or lifted.

However, since China’s fertility rate fell most dramatically during the 1970s before the one-child policy was introduced, and since birth rates are falling nearly everywhere in the world, it’s questionable whether the one-child policy alone is to blame for the decline in China’s birth rate.

More fundamental socio-economictrends such as wealth and educationare also responsible.

Shanghai and Beijing, the two cities with the highest GDP per capita, have the lowest fertility rates. Similarly, the Demographic Pulse reports “a clear correlation” between women’s education and fertility: “the higher the level of education, the lower the number of children.”

“Even if the one-child policy were relaxed or lifted, the decline in the workforce potential could be alleviated but no longer prevented,” says Professor Michael Heise, Chief Economist and Head of Corporate Development at Allianz.

Other countries are also aging

China appears to be repeating demographic patterns experienced in other emerging economies where the GDP per capita is approximately on par with China’s.

In Thailand, Turkey and Tunisia, birth rates have now fallen below the reproduction rate of 2.1 children per woman needed to maintain a constant population.

Similarly, since the collapse of the Soviet Union and the introduction of economic reforms (not unlike those in China) in the 1990s, birth rates in eastern European countries have also fallen significantly.

Sustainable social systems

Regulations in Chinese provinces that aim to dampen the population aging process by relaxing the one-child policy are therefore likely to come up against the same problems as family policymakers in wealthy, well-educated nations such as Germany, Austria or Italy, where birth rates have remained stuck at a low level for many years.

Financial incentives – in China a reduction in fines for infringing the one-child policy, in Germany an increase in child benefits – are unlikely to be sufficient to reverse the overall trend.

“It is therefore all the more important to establish a demographically sustainable social system as a matter of urgency in which capital-funded private provisions play a key role,” says Heise.

In China this could include increasing the retirement age to 65 years, thus delaying the demographic turning point by another three years and significantly lowering the old-age-dependency ratio in the long term.

In the European Union, despite a retirement age of 65, the turning point will be reached as early as 2012.

Write a Comment

Comments (0)

Search for related articles