South China Morning Post
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An elderly man carries a young boy at a park in Beijing on February 9, 2021. Births fell in China for the fifth year in a row in 2021, adding to fears that country will soon be left with a reduced and overburdened working-age population. Photo: AP
Opinion
David Chao
David Chao

China’s shrinking, ageing population should drive its transition into a digital economy

  • Shifting demographics are not necessarily bad news for China, provided it continues to move away from manufacturing towards a more productive digital economy
  • Investment in services and technology, particularly those needed to support an ageing population, can ease workforce pressures and improve standards of living
David Chao
David Chao
Why you can trust SCMP
China’s National Bureau of Statistics recently published census data that showed the country’s population is ageing and its growth slowing sooner than anticipated. Last year’s population growth was the slowest since the Great Leap Forward in 1959-1961.

If births continue to decline this year, then China’s population could have already peaked, which raises longer-term economic and policy questions.

The most remarkable data point has been the drop in total births, which was as much as 11.5 per cent last year. There is evidence that the pandemic is partially to blame; in Hubei province, which was the epicentre of the Covid-19 outbreak in 2020, births decreased by 27 per cent in 2020 compared to a 1.6 per cent drop the previous year.
Covid-19 aside, the number of marriages and women at peak child-bearing age have also been declining for years. Families cite several deep-rooted socioeconomic issues as reasons for deciding to delay marriage or having children, including the high cost of living and child rearing, onerous work hours and obligations of elderly care. A 2021 survey indicated that Chinese women were willing to have just 1.8 children on average, below the 2.1 replacement level needed for a stable population.

This demographic challenge is not just a problem in China. Birth rates across the globe were falling even before the pandemic, including in developing markets. Even India, where the GDP per capita is around one-fifth of China’s, reported in 2021 that the country’s birth rate had fallen below the replacement level for the first time on record.

The Chinese government is taking action at all levels of administration, with “common prosperity” principles driving reforms to address childcare costs. Maternity leave has been extended in 25 provinces and regions, for-profit education services are facing new restrictions and a rotation programme to bring teachers from top school districts to less well-off ones has been launched.

The rapid decline in births is intensifying the other major demographic challenge facing China: a rapidly ageing population. The working-age population (those aged 15-64) decreased by 2 percentage points between 2019 and 2020, driving the old age dependency ratio from 11 per cent in 2010 to 20 per cent in 2020. Estimates by the United Nations suggest that people aged 65 or above will make up 25 per cent of China’s total population as early as 2050.

Policymakers have already confirmed that they plan to incrementally raise the mandatory retirement age (currently 60 for men and 55 for women), which could help to buffer a shrinking labour force.

Other initiatives, such as the development of third-pillar (private) pensions and increased spending on research and development to boost labour productivity, will play an important role in ensuring China adapts to its new demographic make-up.

07:02

China tackles challenges posed by its ageing population

China tackles challenges posed by its ageing population

The combination of plateauing population growth and a greying society presents a hurdle for an economy that has relied on a youthful population to propel it forward. In response, policymakers have been quickly transitioning the economy from one driven by manufacturing and investments to one led by services and consumption.

The younger generation in China is now vastly more educated than the one before it. Investment has been poured into human capital development, with the university student-to-population ratio surpassing 3 per cent. Patent applications, a metric for innovation, reached almost 1.5 million in 2020.

Rather than only seeing slowing demographics and an ageing population as a challenge to China’s development, it’s possible to look for opportunities.

The priority for the country is to focus on productivity growth rather than top-line aggregate growth in the labour force. Technology and other high-growth companies are already charting a path towards a more productive digitised economy.

China is at the forefront of cutting-edge capabilities in robotics; 168,377 Chinese industrial robots were installed in 2020 and projections for 2021 are around 290,000. China also leads the way in artificial intelligence (AI), representing 28 per cent of the world’s AI research production.

01:39

Robot bartender serves drinks at the Beijing Winter Games

Robot bartender serves drinks at the Beijing Winter Games

Meanwhile, despite the population plateau, China’s consumer market continues to grow and mature. The vast “silver” generation creates new opportunities for goods and services catering to an ageing population. It’s likely that spending and investments on assisted living and health care will rise, benefiting pharmaceuticals, providers of medical devices, and internet health care companies.

As we look to a post-pandemic future, all signs point to a new paradigm where all of the world’s major economies experience lower population growth. This reality will require a different growth model that prioritises productivity gains and improvements to the standard of living across society.

Policymakers in China and beyond will need to think creatively about how they can prepare their economies for such a future.

David Chao is Invesco’s global market strategist for Asia-Pacific

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