How Severe Are China’s Demographic Challenges?

How Severe Are China’s Demographic Challenges?
How Severe Are China’s Demographic Challenges?
How Severe Are China’s Demographic Challenges? Top

    For centuries, China boasted the largest population of any country, giving it significant global heft. That is changing as China’s population shrinks and ages at a faster rate than almost any other country. In 2022, China’s population dropped for the first time in decades, and in 2023 India surpassed China to become the world’s most populous nation. China’s changing demographics pose major, prolonged challenges for the country and its leaders. China has for decades reaped the economic dividends that came with having a young workforce to fuel China’s emergence as a global industrial powerhouse. Now, the number of Chinese retirees will soon skyrocket, reducing the size of China’s workforce and putting pressure on China’s social safety net and healthcare system.

    The Drivers of China’s Changing Demographics

    China’s population grew at a breakneck pace during the mid-twentieth century, swelling nearly 50 percent between 1950 and 1970. Driven by fears of the extraordinary challenges of effectively governing a rapidly expanding population, the Chinese government began to institute population control measures in the 1970s. The “later, longer, fewer” (晚稀少) campaign, which was initiated in 1973, raised the legal age of marriage to 23 for women and 25 for men, encouraged at least a three-year period between births, and limited births to two children. Those who did not adhere to the new regulations faced penalties. This policy proved successful. Between 1970 and 1980, China’s fertility rate (the number of births per woman) plummeted from 6.1 to 2.7.

    The government followed up the “later, longer, fewer” campaign with the one-child policy. Launched nationwide in 1980, the policy strictly limited urban couples to a single child. The policy was later relaxed in the mid-1980s to allow ethnic minorities and rural families to have two children if the first child was a girl.

    The draconian policy engendered international criticism and was routinely condemned by human rights groups, which argued that the frequent practices of forced abortion and sterilization were human rights violations. An Amnesty International China researcher described these practices as “torture” and contended that “the state has no business regulating how many children people have.” Human Rights Watch asserts that Chinese family planning policies “continue to impose severe restrictions on women’s reproductive freedoms,” and rights activists pressed the UN to take decisive moves against it.

    While forced abortions and sterilizations were officially banned, they nonetheless became frequent occurrences as local officials tried to enforce birthrate targets set by the central government. This resulted in a dramatic gender imbalance that originated in strong cultural and social preference for male children, which tarnished how China was viewed on the global stage. Despite outlawing fetal sex determination in the late 1980s, evidence indicates that it was common for parents to either give up their female children to adoption agencies or have gender-selective abortions. In 2021, there were roughly 30 million more men than women in China, and a study estimates that there are over 62 million “missing” women—females who would be alive without gender discrimination. This gap may become a factor contributing to social instability. A 2007 study found a large and statistically significant link between the gender-ratio imbalance for 16-to-24-year-olds and male crime rates in China.1

    In order for a population to maintain its size, the total fertility rate must be around 2.1 children per woman. As a result of decades of population control measures, fertility rates in China fell well below that threshold. By the 1990s, China’s fertility rate dropped to 1.5 births per woman and as of 2020, it fell to a historically low 1.3 births per woman.

    Chinese leaders responded to China’s plummeting fertility rates by easing the one-child policy. Starting in 2013, any parents who themselves were only-children were permitted to have a second child. In 2016, the government extended this policy to all couples, formally ending the one-child policy.

    These policies have not alleviated the problem. When the government eased the one-child policy in 2013, officials predicted an additional 2 million births in 2014, but only 470,000 more people were born in 2014 than 2013. Similarly, despite recent government encouragement to have three children, China’s birth rate continues to fall. Between 2010 and 2020, China’s average household size fell from 3.1 to 2.6 persons.

    Soaring housing prices and an overall increase in the cost of living have made childrearing financially daunting for many. In 2019, it was reported that the average cost of raising a child to age 18 in China was nearly seven times the country’s GDP per capita. The Covid-19 pandemic and China’s zero-Covid policies worsened the situation. Reports surfaced in 2022 that strict Covid-19 lockdowns limited hospital access, even for expecting mothers, further dissuading some from wanting to have children during the pandemic.

    The Challenges Facing Chinese Society

    China has long relied on its young, mobile workforce to form the backbone of its economy, but current demographic trends could hamper China’s economic growth and create challenging social problems. China’s difficulties will be compounded by the rapid aging of its society.

    After peaking at over 1.42 billion in 2021, current forecasts project that China’s population will shrink by over 100 million people by 2050. By the end of the century, China’s population may dwindle to less than 800 million, with more dire scenarios putting the figure at less than 500 million.

    China’s future population will also be older. Healthcare in China has transformed dramatically over recent decades. Mao Zedong’s famous “barefoot doctors” program trained hundreds of thousands of young Chinese to provide affordable basic care to China’s rural population. More recently, China’s rapid economic development has fueled higher spending on healthcare. In 2000, healthcare spending in China totaled just $55 billion, but by 2021 that figure had soared to nearly $1.2 trillion. This has dramatically improved life expectancy in China from just 44 years in 1960 to 77 in 2020.

    Greater life expectancy, combined with lower fertility rates, has resulted in a rapidly aging society, and the problem will only intensify. Some estimates predict China’s old-age dependency ratio (the ratio of people over age 65 to the number of people aged 15-64) to reach nearly 52 percent by mid-century. This would mean that for every two working-age individuals there will be one person aged over 65. By the 2080s, that figure could climb to almost 90 percent.

    For a country whose economy remains reliant on affordable sources of labor to drive its manufacturing sector, China’s aging working population presents a serious economic problem. These shifts will lead to reduced productivity, and as China’s large surplus labor pool begins to dwindle, manufacturing wages will increase and the sector will decrease in profitability.

    The aging of China’s population will also have deep social consequences. Traditionally, most Chinese children care for their parents through old age, as demonstrated in the Chinese expression “raise children to provide for old age” (养儿防老). As China’s working-age population shrinks in proportion to the elderly population, the burden of supporting retirees will grow.

    Chinese officials are cognizant of the country’s mounting demographic crisis. Ning Jizhe, the director of China’s National Bureau of Statistics, stated, “The economic structure and technological development need to be adjusted and adapted” to accommodate the shrinking working-age population. President Xi Jinping has weighed in as well, acknowledging that China faces “the pressure of a large population and the challenges brought about by the transformation of the population structure.”

    Many provincial and local governments are implementing incentives for families to have a second or third child. In Jinan, Shandong Province, families will receive childcare subsidies of 600 RMB ($86) per month for three years for a second or third child born after January 1, 2023. Other cities have chosen to provide one-time subsidies. In Hangzhou, families are eligible for 5,000 RMB ($720) for a second child and 20,000 RMB ($2880) for a third child.

    The central government is also taking steps to develop the country’s limited social welfare system and improve China’s senior-care capabilities. The 14th Five Year Plan—a key document that lays out goals and policies for the following five years—emphasizes the need for a “long-term population development strategy.” The plan calls for establishing policies to encourage families to have more children through improved parental leave policies and childcare facilities and greater resources during pregnancy and childbirth. It also states the country will improve elderly care by adding nursing beds to 1,000 public elder care facilities and enhance training for geriatric nurses.

    China "faces the pressure of a large population and the challenges brought about by the transformation of the population structure."

    Xi Jinping

    Similarly, in 2022, the State Council released a plan to “expand the supply of elderly care services [and] improve the health support mechanisms for the elderly.” As part of its efforts, the government has said that the retirement age will slowly be raised by 2025, but it has provided few details. Currently, most men retire at age 60 while women working office jobs retire at 55 and women working blue-collar jobs retire at 50.

    Yet Chinese leaders face strong opposition to increasing the retirement age or adjusting pension policies within China. In February 2023, thousands of people protested outside government offices in Wuhan after the city slashed medical benefits for retirees from RMB 260 per month to less than RMB 100. Similar protests erupted across the country in the cities of Dalian and Guangzhou. The medical benefits went to the chopping block as part of broader cost-cutting measures to curb local government debt, which has piled up amid strict zero-Covid policies, a housing market slump, and slowing economic growth. As China’s population ages, policymakers will face a tough juggling act of supporting retirees under resource constraints and competing interests.

    How China’s Demographic Challenges Compare

    Analyzing China’s shifting demographics through comparison with other countries highlights the extent of China’s aging problem. Having an aging population is a common demographic problem in developed countries, where birthrates have steadily declined with higher levels of income, healthcare, and education. Countries such as Japan and Germany have had decades to adjust as their populations have aged gradually. China, on the other hand, has begun the aging process at an earlier stage of development and at a more accelerated pace than most countries have experienced.

    India, which like China is a highly populous developing country, offers an important point of reference. Click through the graphic below to see how each country’s population will age between 2020 and 2070.

    As China ages more rapidly than India in the coming decades, it is possible that India will reap a “demographic dividend,” where the proportion of the working population in India will increase relative to China. This could lead to a shift in manufacturing jobs from China to India, a sector in which India has traditionally lagged.

    To address its aging population, China could look to the strategies utilized by developed countries to manage their own aging societies, including Japan, Germany, and the United States. While China’s fertility rate is comparable to these countries (1.3 in China and Japan, 1.5 in Germany, and 1.6 in the United States), China has little experience in providing social services to aging populations. Countries such as Germany, Japan, and South Korea have developed long-term social insurance systems designed to provide benefits to older populations.

    Japan’s system, which has been particularly successful, provides care to all people over 65. The national pension system is funded by mandatory fixed premiums paid by those between the ages of 20 and 60, as well as local and national taxes. In 2001, faced with a massive incoming wave of retirees, Germany passed a major pension reform, reducing pay-as-you-go benefits while encouraging private pension options. The introduction of a voluntary private pension program has shifted Germany’s pension plan to be more of a contribution-first system, where people who contributed more to the pension program can exact more when they reach retirement.

    One crucial disadvantage facing China is its negligible immigration rate. The United States and many European countries have been aided by positive net migration, which helps to offset low birth rates and replenish the working age population. Since 1960, the United States has averaged net inflow of over 1,000,000 migrants into the country each year while China has averaged a net loss of over 265,000 migrants each year. In 2020 China was home to just 1 million migrants—about 0.1 percent of its population.

    In short, while China is undertaking efforts to strength its welfare capabilities, it still lags many developed nations. On top of that, China lacks the inward flow of migrants that have helped to slow or reverse the decline of working age populations in other countries. Without these, China will find itself facing a slow-moving demographic crisis over the coming decades, and its leaders will have to make tough choices as they navigate the challenges ahead. ChinaPower