Grey boom: Decades of birth controls leave China with distorted demographics

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After decades of rigid birth controls, China now stands at the precipice of a population explosion – of elderly people.

By 2030, the country will count 143 million more people aged 60 and older, a two-thirds expansion over 2015, according to a new analysis by Renmin University researchers.

Over that 15-year window, the working-age population will shrink nearly 10 per cent, a decline of 87 million people that outnumbers the population of Germany.

The figures provide a sobering new look at how rapid demographic change stands to compound the economic problems already clouding the country's outlook.

"China's current demographic structure is severely distorted, as the country now faces problems such as low fertility, an aging society and gender imbalance. This may hinder economic development as well as social stability in the long run," Mu Guangzong, a professor at Peking University's Institute of Population Research, told Global Times, which reported the statistics this week.

Its economy now growing at its slowest pace in a quarter-century, China has already left behind the frenetic exuberance of a country once powered by oceans of inexpensive labour. Some regions are now experiencing worker shortages that have compounded wage pressures. Adjust for productivity, and Chinese hourly manufacturing costs have risen to two-thirds those in the United States, eroding the competitiveness of the industries that once drove it forward.

"It's going to become harder for China to continue the current momentum of labour- and manufacturing-intensive industry," said Wang Huiyao, director of the Center for China and Globalization think tank.

Imports and exports are declining at a double-digit clip. A shrinking labour force isn't likely to help manufacturers reverse that trend.

China has already passed its peak in working-age people, and the scale of looming decline reinforces doubts about whether it can emerge from the so-called middle-income trap, or whether it will simply age too fast to build more wealth.

But hurtling into old age may not be all bad for a country whose leadership is eager to leave behind labour-intensive growth in favour of a more innovative, competitive and consumer-focused model.

As people fall out of the workforce, China's leadership has less need to create jobs "just to soak up the demographics," said Andrew Batson, China research director for Gavekal Dragonomics. That has allowed it to keep unemployment at just over 4 per cent, meaning people are working in the midst of slowing growth.

"The fact the job market is holding up relatively well is the main thing keeping consumption going, even as other parts of the economy sputter," he said. "China going through this demographic transition now is actually quite fortunate, because it helps them keep growth going while they're dealing with the aftermath in the housing boom and the big downturn in investment."

China may also use policy to fight demographics in coming years, by promoting later retirement and bringing more women into the workforce. Those changes could substantially forestall workforce declines. China's 710-million strong workforce today is already smaller than the 824 million working-age people expected in 2030.

China will still have "a comparatively sufficient workforce supply," said Du Peng, vice director of Renmin University's Population Development Studies Center.

Companies, too, will benefit from more middle-aged workers who tend to be more productive, and from better skilled young people.

"Those entering the workforce in the future may be smaller in number, but they are likely to be higher in quality," said Prof. Du, who pointed to the 7.49 million college and university graduates in 2015.

Some graduates have already struggled to find jobs, with companies cutting hiring in Jiangsu province by 20 to 30 per cent last year, according to local media reports.

Vast numbers of new retirees, meanwhile, threaten the country's fiscal management.

"How do you provide for a large number of elderly people when you're still basically a middle-income country?" said Mr. Batson.

The easiest solution is to borrow a lot of money. "It's another reason to expect that China's government, which at least on official terms is not heavily indebted right now, becomes much more indebted in the future," he said.

Other solutions include engineering social change that could have long-lasting implications.

China is already experimenting with measures that mark a dramatic departure from its long history as an insular country which even today has some of the world's smallest percentage of foreign-born residents.

The city of Beijing, for example, recently said it would grant visas to foreign domestic workers for the first time, raising the prospect of, say, Filipino nannies supplanting Chinese helpers on their own soil.

"China used to be a labour-exporting country. We may some day become a labour-importing country," Mr. Wang said.

– with reporting by Yu Mei