Population time bomb threat to China’s goal to surpass US

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Population time bomb threat to China’s goal to surpass US

Residents queue for their buffet lunch at Heyuejia, a care home for the elderly, in Beijing, China May 26, 2021. Picture taken May 26, 2021. REUTERS/Carlos Garcia Rawlins

Population experts tell GlobalMarkets how forecasts of China’s shrinking population will make it harder for it to “compete on the world stage” with the United States and will leave it with rising pensions costs

China’s demographic problems may wreck its ambition to become the world’s leading economy as it struggles to cope with the costs of supporting its elderly population, leading experts have warned.

China’s population is forecast to shrink this year for the first time since the 1960s — a decade ahead of schedule — according to the United Nations’ 2022 World Population Prospects report.

It is on track to have “just” 587 million people by 2100, fewer than Nigeria or the United States while India will replace it next year as the most populous nation. According to the China Academic of Social Sciences, the US could overtake it as early as 2060.

Nancy Qian, professor of economics at Northwestern University and an expert on China’s demographics, said the share of the population of working age would slump from 80% today to 30% by 2100.

“It’s a huge drop and the government cannot stop it,” she told GlobalMarkets. “Older people, who now expect a certain level of healthcare and a middle-class lifestyle, will need to be supported by an ever-shrinking younger population.

“Most countries push through the transition from high to low fertility after they get rich, but China is doing so despite not being rich, and just as the economy is starting to slow. It’s a double whammy.”

Daniel Tu, founder and managing director of Hong Kong-based Active Creation Capital, said: “Xi’s ambitions are to turn China into a great power, and that requires long-term intensive capital allocation. If China has peaked, it may never surpass the US as the world’s largest economy or become a superpower, and for Xi, that’s really bad news.”

One-child policy

The causes are many and interconnected: a controversial one-child policy, implemented in 1980 and only recently scrapped; the high cost of parenting; a lack of affordable healthcare; and now, a slowing economy and a stricken property sector.

The implications will be complex and costly. Xiujian Peng, a senior research fellow at Victoria University, said China’s pension payments would have to rise five-fold, to 20% of GDP by the end of the century, from 4% today.

There are no easy fixes to a crisis, decades in the making. China is unlikely to open its borders to migrant workers. Its one-child policy means people are used to small families. Countless couples, favouring a boy, aborted girl babies, resulting in an unusually small number of women of child-bearing age.

The government could relax long-standing restrictions on rural-urban migration. This would give rural workers the same rights as city-dwellers, in areas from healthcare to education. Productivity would rise, perhaps sharply. The downside would be wage deflation, as employers in big cities hire cheaper newcomers.

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