China's Shrinking Population Could Spell Trouble for Economy and Labor Force, Warns Experts

In recent years, China has been facing a significant demographic challenge as its population continues to shrink. This demographic shift has raised concerns about the potential negative impact on the country's economy, labor force, and fiscal policies. Experts have warned that without effective measures to address this issue, China may experience a substantial drag on its economic growth and face immediate fiscal strains.

Population Decline and Economic Consequences

According to data from the National Bureau of Statistics of China, the country's population fell for a second consecutive year in 2023, dropping by 2.08 million people from the previous year. This decline has been attributed to various factors, including the long-standing one-child policy implemented in the 1980s. As a result, China's population is projected to shrink to 1.317 billion by 2050 and further decrease to 732 million by 2100, significantly impacting the country's demographic landscape.

Furthermore, the declining birth rates and fertility rates in China have raised concerns about the shrinking workforce and the potential strain on the country's welfare and pension systems. The adverse demographic trends are expected to manifest primarily through the diminishing labor force, ultimately affecting economic productivity and capital accumulation.

Challenges and Policy Recommendations

The Economist Intelligence Unit (EIU) has highlighted the urgent need for policy interventions to address the demographic challenges facing China. One of the proposed measures is the consideration of raising the retirement age to mitigate the long-term fiscal imbalance. By raising the retirement age to 65 by 2035, the pension budget shortfall could potentially be reduced by 20% and improve the net pension for the elderly, offering relief to both the government and households.

Additionally, experts have emphasized the need for the Chinese government to provide greater fiscal support for childbearing, particularly in the context of surging home prices. Addressing the rising housing costs and promoting work-life balance are seen as crucial steps in encouraging family formation and addressing the demographic decline.

Impact on Economic Growth and Productivity

The declining fertility rates and aging population in China are expected to have a profound impact on the country's economic growth and productivity. Experts have underscored the critical link between population growth and the future working-age population, emphasizing the potential burdens on healthcare and pension systems due to the increasing ratio of elderly individuals requiring support.

In response to these challenges, Chinese policymakers have been focusing on productivity growth and investing in digital solutions and advanced technologies to enhance efficiency in traditional industries. The emphasis on productivity growth is seen as a crucial strategy to mitigate the decline in labor contribution to GDP and sustain economic progress amidst demographic challenges.

Future Prospects and Economic Resilience

Despite the anticipated slowdown in economic growth due to demographic shifts, experts have expressed confidence in the resilience of the Chinese economy. While the demographic challenges may lead to a moderation in growth, the long-term outlook remains positive, with the potential for sustainable economic expansion.

Even with a more moderate growth rate, the average Chinese citizen is projected to experience a real increase in income by 13% by 2033. This underscores the expectation that living standards will continue to rise, indicating the inherent economic resilience of China in the face of demographic headwinds.