China may end up too old before it could get sufficiently rich

China’s leader Xi Jinping had warned the officials of the ruling Communist Party of China (CPC) several years before to watch out for “black swans”—unusually rare disruptive events; and “grey rhinos”—obvious problems of high impact which are generally overlooked. The “black swan” has already unleashed itself upon the world from China a year back, leading to the current pandemic. Meanwhile, the “grey rhino” has made its presence felt recently with the release of China’s census conducted in 2020, the seventh since 1953. This has added credence to past assessments that China’s population will peak by 2027 or much before, perhaps well within the next couple of years.

According to the census, the population of China grew to 1.412 billion in 2020 from 1.34 billion in 2010, a growth of 5.38%. The census revealed that China’s population grew at the slowest rate in any decade since the 1950s. The annual population growth in the past decade was just 0.53%, compared to the 0.57% the decade before that. The rate of growth in China’s population has been falling continuously for the past four years. The census noted that there has been an 18% decline in the number of births in China compared to the previous year. In fact, China’s fertility rate has dropped much below the population replacement level of 2.1 to 1.3.

Blame It On Success

One of the biggest reasons behind China’s projected demographic decline is the “One Child Policy” adopted by China since the late 1970s. This controversial policy was initiated by China’s reformist leader Deng Xiaoping at a time when he was opening up the country’s closed economy. The policy was projected as the panacea to China’s problems of widespread poverty and underdevelopment. The government at the time feared that an uncontrolled, rapidly growing population could put undue stress on the resources of a country at the cusp of high trajectory economic growth.

The One Child Policy is also seen as responsible for the decline in China’s sex ratio. With the possibility of raising only one child, there was a conscious effort by families to avoid female children. This has led to a plethora of socio-economic issues, including “leftover men” and a dropping fertility rate which could eventually become the lowest in the world. The decline in both population and sex ratio seems to reinforce each other. The One Child Policy, though a major factor, is not the sole contributor to the demographic decline. The rising living costs and the natural progression of social norms in China also has its role to play in limiting the size of families. In a way, this projected decline is a consequence of China’s apparent success. The accumulated weight of four decades of population policy and socio-economic progress seems to be finally pushing China’s demographic trajectory to its inflection point.

Grey Shadow Over The Chinese Dream

Population decline is not a rare phenomenon, especially among developed and advanced countries. In fact, most of these countries are either having low population growth rates or are in demographic decline. For instance, the birth rate in the US has reached its lowest recorded figure of 1.6. However, it is not a usual pattern for developing countries. Nevertheless, China is located in a region which has been witnessing a fast declining population. Japan has been the poster-child of demographic decline in the 21st century. South Korea has started experiencing the same since the past year. China’s case is distinct even within this neighbourhood, since it may experience such a trend much before it becomes a developed country in line with the standards of Japan or even South Korea, let alone the United States or Western Europe. Moreover, unlike these advanced countries, China has not reached the level of sophistication where it can suffer a demographic decline without serious consequences. This is because it has not yet emerged out from a labour-intensive manufacturing and agriculture based economic structure. In short, China may end up too old before it could get sufficiently rich.

The biggest impact of the population decline will be a drop in the country’s labour force. The number of the young people which will be joining the workforce will be progressively reduced in the coming decades. Currently, the working population of China, aged between 15 and 59, is 63.35% of the total population. It has dropped by 6.79% from 2010. Another area where China will feel the economic pinch will be that of a growing share of senior citizens and retirees in its population. The number of people above the age of 60 in China has gone up by 5.44% to reach 18.7% of the total population. The growing financial burden of this section of the population will fall on the declining population of the relatively younger sections of the population.

Another significant economic impact will be the reduction in consumption levels, which will adversely affect China’s growth prospects. With the growing emphasis on pensions and healthcare for the elderly, the savings of the working population will be substantially diminished, adversely affecting domestic consumption and investment. More importantly, it will challenge China’s dual-circulation model, which was revamped recently to reduce dependence on foreign trade and focus on domestic consumption. In short, the efforts to insulate China from adverse global economic trends may not see the desired results with a declining population. It is also estimated that within the next decade, the women of childbearing age in China will decline by a third, further speeding up the process of demographic decline. Then there is the psychological impact on a society in which most of the individuals increasingly lack any direct relatives as a result of decades of generating “little emperors” without siblings under the One Child Policy. It is very clear that China has achieved phenomenal growth through its demographic dividend. However, in the coming decades, China may have to learn to grow without it to achieve its ambition of becoming a pre-eminent power.

China's Losing Battle Against The Grey Rhino

China had already relaxed its One Child Policy in 2016, whereby it allowed families to have two children instead of one. There has been only a marginal impact of this relaxation. The number of individuals below the age of 15 has risen by 1.35% from 2010, reflecting this policy shift. However, this seems to be too little, too late. It is expected that the Chinese government will bring in more incentives to make sure that families will be encouraged to have more children. It is also possible that the two-child bar may be raised in the coming years. The current and emerging domestic situation is that of a working couple supporting four parents and a child, in addition to one or more grandparents, as living costs rise. This situation explains not only why the relaxation of the One Child Policy has not worked, but also why any level of relaxation or incentive may never effectively work.

Yet another response which China is currently considering is by gradually increasing the retirement age in a phased manner, but it may have only limited effect. Immigration could be yet another solution that the CPC may be considering, which may not dovetail with the growing popular nationalism in China. Moreover, China hardly is an attractive destination for outsiders to settle, considering the increasingly tight control of the state over the not just the lives of citizens, but also their thought. China is also not in the same developmental stage as Japan to embrace radical ideas like considering humanoids as a possible replacement for humans.

Grey Rhino Makes Room For Elephant

Perhaps the biggest beneficiary of China’s population decline is India. It is expected that India will overtake China as the most populous country in the world towards the end of the decade, if not within the next two years. While the median age of a Chinese is around 38, that of an Indian in ten years younger, one of the lowest figures among the major countries of the world. At a time when data is considered as the next oil, the role of population becomes more important than ever. The deficit in global economic growth created by China’s diminishing savings will create a vacuum which only a country with an equal demographic size and economic potential can fill.

That being said, it is not just the quantitative aspects of demography which is important in the considerations of national power. Even at times when technology was not much advanced, the most powerful nations were not the ones with a huge demography. Perhaps it can be argued that the powers which did rule the world had the ability to mobilize human resources within and outside its borders to pursue their national ambitions. In this context, a high degree demographic dividend may not, by itself, assure India a prominent place in the international system. For that, India has to certainly go a long way and invest heavily in converting its demographic dividend into a strategic asset.