China workforce

China's demographic time bomb

China's workforce is shrinking so fast that it will soon find itself at a competitive disadvantage to India's booming population, according to a recent paper by Deutsche Bank.
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China faces a baby shortage (AFP)
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<div style="text-align: left;"> China faces a baby shortage (AFP) </div>

China’s rapid economic growth and ineluctable rise faces an unavoidable threat.

Well-flagged dangers, such as asset price bubbles exploding, hidden non-performing bank loans being exposed, inflation adding to rumbling social discontent, or consumption failing to catch up with years of investment in fixed-capital formation, might turn out to be merely temporary glitches, if they materialise at all.

However, that’s not the case for what amounts to China’s ticking demographic time bomb. Unfortunately, too, it is already too late to cut the wires to prevent the bomb from detonating.

“The aging of China is probably the fastest in history,” wrote Sanjeev Sanyal, Deutsche Bank’s global strategist in a paper published on May 13, The End of Population Growth.

China recognises the problem. The head of the country’s statistics office, Ma Jiantang, has said that the 2010 census showed the share of the population aged 14 years or less is now just 16.6%, a fall of 6.3 percentage points since 2000.

The conclusion is that “China’s workforce will peak in the next few years and will decline through the 2020s before collapsing in the 2030s,” said Sanyal. Even a relaxation of the one-child policy, introduced by Deng Xiaoping in 1980, will have little if any effect in the medium term, because China “is already past the tipping point because of a combination of gender imbalance and a very skewed age structure”.

The number of women of child-bearing age will fall by 8% during the next decade, a further 10% in the 2020s and then at an even faster pace if nothing is done to correct the trend. Increasingly, more women will have to withdraw from the workforce to focus on reproduction and childcare. Yet, “even if such social engineering was possible today ... this will actually worsen the problem of [the] shrinking labour force for decades”, said Sanyal.

Of course, this aging trend is well established in developed countries, and has also been evident throughout Asia for some time, especially in Japan and South Korea, where workforces will also suffer sharp declines during the next three decades. Fertility rates are declining and are likely to fall to the replacement rate within the next two decades. Rising longevity might mitigate declining birth rates to some extent, but the UN, using 2010 census data, now expects the world’s population to peak at around nine billion in 2050.

The exceptions in Asia are the Philippines — where perhaps its most influential citizen, boxing champion-turned-politician Manny Pacquiao, is doing his best to keep the birth-rate high with his vocal opposition to contraception — and, most important, India.

So, comparisons with China’s economic progress might soon switch to India’s favour. Discussions will concentrate less on the merits of authoritarian and democratic political regimes, the levels of institutional corruption and the honesty of business practices; instead, weight of numbers should support India in the race — albeit one that neither country acknowledges is taking place.

According to Deutsche Bank, India is the only country in the world “that has a workforce that is growing in sufficient scale over the next three decades to balance the declines expected in other major economies”. Between 2010 and 2020, the bank estimates it will rise by 17%, by 11% during the following decade and by another 5% between 2030 and 2040. In addition, Indians are becoming better educated, with the country’s literacy rate now at 74% compared with 65% in 2001, according to the latest national census.

Whether India can take advantage of this “demographic dividend” by introducing appropriate policies and building essential infrastructures is another matter. But, as Sanyal said, “it cannot be denied ... that the opportunity exists and will be in place for a long time”.

Meanwhile, China will be compelled to move swiftly up the value chain, jettisoning labour-intensive industries for capital-based ones. In the context of its demographic future, China’s relentless, manic drive towards industrialisation, urbanisation and economic security makes sense. Perhaps, this is actually its one, small window to modernise. No wonder it is in a hurry.

¬ Haymarket Media Limited. All rights reserved.

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