China Population Structure Change Demands Economic Reform

China

On March 13, China’s annual parliament meeting closed. Reforms in financial sector, economic structure, environmental protection, and many other areas were proposed. During the nine days of the meeting, there was plenty of news showing disappointing performance in areas such as investment, retail sales and factory output in the first two months of this year. These already invited speculations that policy easing from the government should be imminent. Beijing repeated said it would tolerate slower economic growth in exchange for economic structural transformation. Aside from the often-quoted reasons for such reform, the unstoppable change of the population structure demands China must tough through the pain of slowing economy and its structural reform.

China’s working-age population shrank for the first time in 2012 by 3.45 million. Looking into the future, the number of 15 to 24 years old will shrink the most, by 38 million or 21% in the next ten years. China now has 14% of its population aged 60 and above and the number would be 30% in 2050. One-child policy had been widely criticized as the reason for this rapid aging. Last November, this policy of 1980s finally got relaxed to allow two children per couple if one of the couple is a one child in his/her family, but experts say this reform may be too little, too late. No population explosion is expected and any effect from this change would not be seen in another 15 years at the earliest, therefore the rapid shrinking of 15 to 24 years old in the immediate future is inevitable.

In the short term, there are opinions that urbanization can overcome the trouble of a shrinking working force. Some people think tens of millions of workers can still leave agriculture jobs to join the urban work force but some people argued all surplus workers were exhausted in 2004. No matter how much surplus labor remains in China’s rural area, no one argues that the number is decreasing fast. This means wages have to increase to compete for the labor. According to the survey on thousands of migrants in 15 cities in China conducted by Xin Meng of Australian National University, land reform (so rural plots can be sold) and household-registration system reform (so families can settle together and use public services) are needed to keep migrants who are already in cities to remain. 64% replied they would stay forever if such restrictions were removed. Here political changes are needed in addition to the economic reform to help coping with China’s population structure change.

Louis Kujis of the Royal Bank of Scotland calculated how much each of the three factors—expansion of employment, the movement of labor from agriculture to other more productive parts of the economy and productivity rising within industries— contributed to the average 9.8% growth in China since 1995. He concluded that almost 80% of the growth is powered by the productivity rising. The secret of China’s success lies not in the addition of its working force, but in the improvement of its workforce from new capital, technology and knowledge.

A fast growing service sector is critical to mitigate the impact of aging populations, as aged labor can stay in work force longer or free up younger labor by doing service jobs that don’t have stringent physical requirements. Despite slowing economy, China has had a strong growth in service section in recent years and this trend should help out the aging population trouble waiting ahead.

The target number of new jobs to be created in 2014 is 10 million. The economic growth rate must be above 7.2% to make this possible. In 2013 the economy grew 7.7% while creating 13 million jobs. China’s Prime Minister, Li Keqiang, emphasized in the press meeting this Thursday that job creation will take priority over holding the growth target. The rapid aging population structure demands the economic reform and the resulting service and consumption oriented economy will suit China’s graying population with minimal struggles.

By Tina Zhang

Sources:

The Economist
Financial Post
New York Times

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