China’s Demographic Miracle – and Impending Decline?

China’s rapid economic growth over the last 50 years has been due to many factors, but one significant contributor has been its demographic dividend, whereby an abnormally large proportion of its population was concentrated in those of working age. However, just as China has benefited so greatly from their demography, they face an impending crisis that may stunt their burgeoning ambitions to become a world superpower.

Throughout history, China has always had near the largest population out of any nation. In fact, its current population is at its lowest level relative to world population for at least 2000 years. This has been in large part due to its two rivers, the Yangtze in the south and the Yellow in the north, the 3rd– and 6th-largest in the world respectively, which supply abundant water for farming and silt deposits that make the ground fertile – in fact, the Yellow River has the greatest silt deposits of any river. Nearer the Yangtze in the south, while the ground is not quite so fertile, the year-round warm climate has allowed for double-cropping without the use of fertiliser for over a millennium.

YearChina Population (millions)World Population (millions)China % of world population
0 59.6230.825.823
1000 59268.321.990
1500 103437.823.527
1600 160555.828.787
1700 138603.422.870
1820 3811041.136.596
1870 358127028.189
1913 437179124.400
1950 546252421.632
1973 881391322.515
1998 1243590721.043
2020 1410795018.226
Data from Maddison, 2006 and CIA World Factbook. N.B. Some prevalent, lower, estimates of historical Chinese population are based on imperial census data. Moving backwards towards antiquity, this data is unreliable due to the way the census was taken, since it was for tax purposes and so peasants that were beholden to a private feudal lord, rather than the state, for tax would not be included in censuses.

However, high population does not mean ideal demography for economic growth. The perfect age profile requires a low number of both children and elderly in the population, meaning there are few economically inactive dependents. This both maximises the quantity of labour, one of the three factors of production, while reducing the expenditure of both the state and of private citizens on those who are out of work. Thus, the effort directed towards economic growth can be maximised during this time.

China has experienced an extraordinary demographic dividend. Births per woman was around 6 in 1965, but declined thereafter to 2.1 (replacement level) by 1985, and to sub-replacement level, at around 1.6, by 1990. Meanwhile, life expectancy has increased rapidly from 41 in 1950 to 69 by 1990, and 75 today. The confluence of a spike in life expectancy and a peak of births, which has steadily declined from near the middle of the 20th Century, has created a boom in working age population relative to the rest of the population. Its effects have been most pronounced from 1990-2010, and can be seen in the below image of China’s population pyramid from 2000.

‘Population pyramid’ for China, 2000. https://en.wikipedia.org/wiki/Demographics_of_China#/

The gains from this population growth have been realised by Deng Xiaoping’s reformation of China’s economy to ‘Communism with Chinese characteristics’, which is more of a state-controlled capitalism than any form of socialism. The combination of changes in economic philosophy and demography have led to rapid economic growth, as the newly-capitalist (in all but name) China has been able to maximise the potential of the boom in the size of the labour force. Since 1979, China’s economy has averaged annual GDP growth of 9.5%, while world GDP growth has never exceeded 4.7% growth in a single year in that time.

However, the bill has come due in the form of a large elderly dependent population, as the workers that fuelled the economic boom have grown old and retired. This is in part due to the infamous ‘one-child policy’ that was enforced from 1980 to 2016. A different ‘later, longer, fewer’ initiative had been in place since 1970, which was anti-natalist and encouraged citizens to have at most two children; the decade it was the primary population policy saw the greatest reduction in births per woman, from 6 to under 3. However, Deng believed that China was soon to suffer from overpopulation, which would be a drain on China’s economic capabilities as their population would be inadequately educated and serviced. Therefore, he enforced the Draconian one-child policy. While the problem is not quite as simple as the commonly-presented conundrum of one working-age child supporting two parents and four grandparents, there is still the kernel of truth that the younger generations will have a massive burden on their hands supporting their elderly relatives. Given the importance placed on honouring one’s elders in Chinese culture, this burden is even greater than it may be elsewhere, as social care or nursing homes are thought to not be a viable option.

The one-child policy is not entirely to thank for preventing overpopulation, as China perceives it, or entirely responsible for the impending demographic crisis. China claims the policy prevented 400 million births, compared to the estimates of independent observes settling closer to 100 million directly prevented, considering the general trend suggests a decline in births was probable regardless.

Many nations across the world are facing this problem too, such as Japan with its population having been in decline since 2011 – China is not unique in this respect. Indeed, much of the developed world, including both the US and the UK, have total fertility rates lower than replacement level. Efforts have been made to reverse the falling fertility and birth rates, with the retraction of the one-child policy in favour of a two-child policy, but the trend has persisted since this change in 2016.

However, China is likely to be adversely affected more than most other countries. This is in part due to their immigration policy. While the US’s population is roughly one-quarter of China’s, they issued 1.2 million permanent residency cards to China’s 1,576. While other developed nations with ageing populations have been able to fill the gap in the labour force with immigration, this is not open to China, due to a lack of the requisite soft power to attract migrants and, more importantly given the extremely low figure above, political decisions.

UN Projections for China’s future population.

China is already starting to feel the effects now, as their elderly dependency ratio has gone from 11% of the working age population to 17% in just the last decade. It is of course afflicted by the issues that all ageing populations face in healthcare and pension costs – pensions now have to be funded by deficit spending for China.

However, most crucially their rapid economic growth has begun to gradually slow down, with a consistent downward trend from 10.6% GDP growth in 2010 to 5.9% in 2019 (more recent data is available, but it is hard to draw out long-term trends from data affected by COVID-19). Future population projections all give a bleak outlook for China, with the UN predicting noticeable decline by 2040 while the world’s population as a whole is predicted to continue to rise. Given that growth is already falling, a smaller total population, and even smaller relative share, coupled with an elderly population profile and little immigration, could put paid to China’s ambitions to become a global superpower.

China’s government investment plans, and the debt taken out to fund them, begin to make less financial sense once the probability of slow growth is considered, and may even contribute to the scale of the issues eventually caused by demographic ageing. $3.3tn was spent on infrastructure in China from 2013-18, and only $10bn of this was private sector investment. Improving China’s transport links and investing in China’s future through hospitals, schools and further projects may be just what is needed to sustain their economic growth. However, it has not reversed the trend so far. The exorbitant spending of China’s government suggests an expectation of ever-increasing growth that seems unlikely for the world; this points to trouble ahead.

Overall, China’s ascent to global superpower has been assisted by their demographic dividend, but it seems that the growth created in this way will not last forever, and indeed the opposite problem may plague China in its continual quest to develop and become a true superpower. This by no means spells doom for China – after all, many of the world’s most advanced and industrialised economies have settled into a low-growth demographic deficit economy. There is no reason that China cannot achieve this too with some policy changes, but the dream of forever onwards and upwards may have to be laid to rest.

Bibliography

Maddison, A., 2006. The World Economy, s.l.: OECD.

https://www.cia.gov/the-world-factbook/countries/china/

https://data.worldbank.org/indicator/SP.POP.DPND.OL?locations=CN

https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN

https://thediplomat.com/2019/12/the-us-china-tech-wars-chinas-immigration-disadvantage/

https://www.rics.org/uk/wbef/megatrends/markets-geopolitics/case-study-how-does-china-pay-for-her-infrastructure–an-introduction/#:~:text=Read%20more%20on%20Markets%20%26%20Geopolitics,%2410%20billion%20of%20that%20total.

https://news.cgtn.com/news/2019-07-11/Graphics-Is-China-ready-for-an-aging-population–IeuKRoApQ4/index.html

https://en.wikipedia.org/wiki/Demographics_of_China

(Featured Image: © ImagineChina)