Why China’s Shrinking Population Is a Big Deal – Counting the Social, Economic and Political Costs of an Aging, Smaller Society

Why China’s Shrinking Population Is a Big Deal – Counting the Social, Economic and Political Costs of an Aging, Smaller Society 1

Yves here. Articles like this are maddening. They take the view that demographic growth is necessary, when global population was largely static for prior to the Industrial Revolution. Moreover, given natural resource limits, it would behoove advanced and middle income economies to adapt to no/negative population growth. It has also been no secret that China had a demographic crunch coming, so it finally having arrived should not be treated as earth-shattering news.

In fact, the results of the US census in 2000 were a surprise. Demographers had expected the US to show little to no population growth. They had not allowed for a big immigrant influx, and then higher Hispanic birth rates.

And the article weirdly underplays how China can adapt. It acts as if it having a manufacturing-oriented economy is a negative. Your humble blogger has pointed out that many clients and contacts have said they sent manufacturing offshore even though the economic case was weak (and remember, the supposed advantage was cheap labor). They could have gotten the cost savings domestically but the fad was offshoring and no one wanted to seem like a management dinosaur.

So if China has labor-intensive activities (likely less so than stereotyped; China has been moving up the value chain for over a decade), more automation can address increasing labor scarcity and costs. Other routes are to encourage more to work after normal retirement age, even if part time, and of course bring in immigrants.

In fact, thanks to Covid, the US may be closer to China’s fate than we think. IM Doc quoted a story that reported that in his state had more births than deaths from July 2021 to July 2022 per US Census data. This is the first time that has ever occurred since his state started keeping that information. 23 other states reported more deaths than births over that period, and the US as a whole showed only a 0.4% increase, including 1 million immigrants. My trusty calculator says o.4% of a 331.9 million population is 1.33 million. So US population growth overall is at stall speed.

As IM Doc remarked:

In the article it states that 23 states are having similar numbers for deaths and births. Not exactly how it was presented yesterday [in an online Grand Rounds discussion] – “so far 24 states have reported their numbers – and EVERY SINGLE REPORTED STATE so far is having the same thing – the birth rate is down – and the all cause mortality is very much up.”

What is concerning to the epidemiologist that was talking to us yesterday is that the actual relative rate in each state of both deaths and births is right about the same number in all reporting states. This would not be expected in any kind of infectious disease problem – or at least it has never happened in history – they tend to have a lot more scatter. No – this is something else – something exogenous.

As I have been telling you all for months – there are significant issues with young women – and with miscarriages – finally, the numbers are coming in to make me realize that I am not losing my marbles. The ICD 10 codes for primary amenorrhea and for mid-trimester abortions are through the roof from historical patterns. Also mentioned was the fact that there is a sudden drop off being noticed by fertility clinics in number and motility of sperm. NONE OF THESE THINGS ARE BEING STEADFASTLY COMPILED ON A FEDERAL LEVEL – so this is at times like the blind leading the blind….

The all cause mortality – estimated about 5-10% have to do with COVID – and that is a stretch – mostly COVID deaths for 2021 an 2022 have been older patients near terminus anyway. No – the ICD codes for pulmonary embolus, acute coronary syndromes, sudden cardiac death, strokes, suicide, drug OD, and various cancers seem to be the cause – and the cancers that are skyrocketing are leukemia, lymphoma, myeloma and solid endocrine and neuroendocrine tumors…

It is going to be very interesting to see the numbers from all the other states that have yet to come in.

We were repeatedly assured this was completely unprecedented and was very concerning. The fact this is happening in multiple other states is also deeply concerning.

Guys, I am getting deeply worried about what I am seeing and hearing. We are beginning to have severe manpower shortage issues in almost every industry. Just getting a plumber is a weeks-long ordeal. And just from my observation, we do not seem to have a lot of people sitting around living on govt handouts as presented in the media.

Shorter: the underlying assumption of this piece, that the US is in a considerably different demographic situation than China, may be inaccurate.

By Feng Wang, Professor of Sociology, University of California, Irvine. Originally published at The Conversation

Throughout much of recorded human history, China has boasted the largest population in the world – and until recently, by some margin.

So news that the Chinese population is now in decline, and will sometime later this year be surpassed by that of India, is big news even if long predicted.

As a scholar of Chinese demographics, I know that the figures released by Chinese government on Jan. 17, 2023, showing that for the first time in six decades, deaths in the previous year outnumbered births is no mere blip. While that previous year of shrinkage, 1961 – during the Great Leap Forward economic failure, in which an estimated 30 million people died of starvation – represented a deviation from the trend, 2022 is a pivot. It is the onset of what is likely to be a long-term decline. By the end of the century, the Chinese population is expected to shrink by 45%, according to the United Nations. And that is under the assumption that China maintains its current fertility rate of around 1.3 children per couple, which it may not.

This decline in numbers will spur a trend that already concerns demographers in China: a rapidly aging society. By 2040, around a quarter of the Chinese population is predicted to be over the age of 65.

In short, this is a seismic shift. It will have huge symbolic and substantive impacts on China in three main areas.

Economy

In the space of 40 years, China has largely completed a historic transformation from an agrarian economy to one based on manufacturing and the service industry. This has been accompanied by increases in the standard of living and income levels. But the Chinese government has long recognized that the country can no longer rely on the labor-intensive economic growth model of the past. Technological advances and competition from countries that can provide a cheaper workforce such as Vietnam and India have rendered this old model largely obsolete.

This historical turning point in China’s population trend serves as a further wake-up call to move the country’s model more quickly to a post-manufacturing, post-industrial economy – an aging, shrinking population does not fit the purposes of a labor-intensive economic model.

As to what it means for China’s economy, and that of the world, population decline and an aging society will certainly provide Beijing with short-term and long-term challenges. In short, it means there will be fewer workers able to feed the economy and spur further economic growth on one side of the ledger; on the other, a growing post-work population will need potentially costly support.

It is perhaps no coincidence then that 2022, as well as being a pivotal year for China in terms of demographics, also saw one of the worst economic performances the country has experienced since 1976, according to data released on Jan. 17.

Society

The rising share of elderly people in China’s population is more than an economic issue – it will also reshape Chinese society. Many of these elderly people only have one child, due to the one-child policy in place for three and a half decades before being relaxed in 2016.

The large number of aging parents with only one child to rely on for support will likely impose severe constraints – not least for the elderly parents, who will need financial support. They will also need emotional and social support for longer as a result of extended life expectancy.

It will also impose constraints on those children themselves, who will need to fulfill obligations to their career, provide for their own children and support their elderly parents simultaneously.

Responsibility will fall on the Chinese government to provide adequate health care and pensions. But unlike in Western democracies that have by now had many decades to develop social safety nets, the speed of the demographic and economic change in China has meant that Beijing struggled to keep pace.

As China’s economy underwent rapid growth after 2000, the Chinese government responded by investing tremendously in education and health care facilities, as well as extending universal pension coverage. But the demographic shift was so rapid that it meant that political reforms to improve the safety net were always playing catch-up. Even with the vast expansion in coverage, the country’s health care system is still highly inefficient, unequally distributed and inadequate given the growing need.

Similarly, social pension systems are highly segmented and unequally distributed.

Politics

How the Chinese government responds to the challenges presented by this dramatic demographic shift will be key. Failure to live up to the expectations of the public in its response could result in a crisis for the Chinese Communist Party, whose legitimacy is tied closely to economic growth. Any economic decline could have severe consequences for the Chinese Communist Party. It will also be judged on how well the state is able to fix its social support system.

Indeed, there is already a strong case to be made that the Chinese government has moved too slowly. The one-child policy that played a significant role in the slowing growth, and now decline, in population was a government policy for more than three decades. It has been known since the 1990s that the Chinese fertility rate was too low to sustain current population numbers. Yet it was only in 2016 that Beijing acted and relaxed the policy to allow more couples to have a second, and then in 2021 a third, child.

This action to spur population growth, or at least slow its decline, came too late to prevent China from soon losing its crown as the world’s largest nation. Loss of prestige is one thing though, the political impact of any economic downturn resulting from a shrinking population is quite another.

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