Chinese economy not keeping pace with aging population

By Joseph Kahn
The New York Times

E-mail this article Print this article Search archive Most e-mailed articles

China will mature more in the next generation than Europe has over the past century, according to data compiled by the United Nations. It will have to grapple with the same age-related fiscal, social and productivity challenges of countries with several times its per capita income.

Put another way, China will get old before it gets rich.

Demography may be no surer predictor of destiny than trade data. But of the two momentous changes championed by Deng Xiaoping a quarter-century ago — coercive population controls and experiments with market economics — the jury still is out on which will do more to shape China's long-term potential.

At least in terms of its original mission, limiting the runaway growth of China's population through the one-child policy instituted by the government in 1979 has been a success. Without it, China's population today would be 1.6 billion instead of 1.3 billion.

But rising longevity and falling fertility have created a new demographic time bomb. China's baby boomers are producing children at well below the rate needed to maintain the country's population, somewhere from 1.3 to 1.8 children on average per mother. The so-called replacement rate, or the birthrate needed to keep the population steady, is on average 2.1 children per mother.

Moreover, a traditional preference for male offspring appears to have intensified as parents have fewer children overall. Selective-sex abortions are illegal but widespread.

China today has the most sexually skewed adolescent and young adult populations in the world; boys outnumber girls at birth by a ratio of 118 to 100, according to China's 2000 census. The normal rate is 103 to 105 males for every 100 females.

Some demographers and political scientists speculate that China's surplus of men will produce social stress, creating an army of bachelors that could be more inclined to commit crimes or wage wars than men in more gender-balanced societies.

For a country struggling with high unemployment and underemployment, the prospect of some tightening in the labor market seems welcome. But the accelerating decline may pose an enormous challenge to a country that has built an economic miracle on cheap surplus labor.

Just 10 years from now, as China's baby boomers begin to retire, the working-age population will begin to shrink, according to "The Graying of the Middle Kingdom," a study by Richard Jackson and Neil Howard, both at the Center for Strategic and International Studies in Washington.
 
"In my view," said Hu Angang, an economist at Qinghua University in Beijing, "this is the biggest challenge China faces in this century: figuring out how to deal with an aging society that is still at a low level of development."

Hu sees a triple threat — a shrinking labor pool, competition for capital and rising taxes — that may force China to rethink its development model altogether.

Beijing now devotes only a small percentage of its spending to social welfare, and uses private savings held in the state-controlled banking system to invest heavily in factories, machinery, real estate and infrastructure.

In the future, the government will either have to spend more on pensions and health care, or allow individuals to earn a better return on private retirement accounts.