InterRegional for Strategic Analysis


        
<p>China’s population fell last year for the first time in six decades, a historic shift expected to mark the start of a long period of population decline with deep repercussions for the Chinese and global economy. The National Bureau of Statistics of China reported the population fell by about 850,000 people to 1.412 billion in 2022, the first decline since 1961—the last year of the Great Chinese Famine, around 60 years ago. This brings the world’s most populous country to a pivotal moment. After a steady, years-long decline in the birth rate that experts say is irreversible, China’s population has started to shrink, signaling a problematic demographic shift for the country.</p>



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<p>United Nations demographic modeling has also revealed that China’s population could fall to 1.313 billion people by 2050, and to less than 800 million by 2100. This could affect the size of the country’s economy and the business environment in it, particularly in light of the aging population and declining labor force. This indicates that China faces an extremely difficult demographic crisis in the coming decades, one that could have global geopolitical and economic implications.</p>



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<p class="has-vivid-red-color has-text-color"><strong>Dimensions of the Crisis</strong></p>



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<p>Multiple dimensions intersect with the demographic crisis the world’s most populous country is experiencing. At their head are a shift in the demographics of the population, low fertility rates, and declining socioeconomic conditions in the country, which have been linked to policies to limit reproductive rates adopted by the country in the late 1970s. The most prominent dimensions are:</p>



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<p><strong>1. Demographic shift: </strong>China’s demographic shift is happening as a result of its low birth rate, which reached an all-time low of 6.77 births per 1,000 people in 2022, down from 7.52 births in 2021. The death rate—the highest since 1974—reached approximately 7.37 deaths per 1,000 people in 2022, compared to an average of 7.18 deaths in 2021.</p>



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<p>This comes alongside the rapid aging of the population. At the end of 2022, China had about 280 million people over the age of 60, up from 267.4 million in 2021. The average life expectancy has also increased significantly in recent decades, leading to a rise in the number of elderly people. This trend is expected to continue, as the number of these individuals is expected to double by 2050. &nbsp;</p>



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<p><strong>2. Adverse effect of the one-child policy: </strong>One of the main drivers behind population decline in China is the one-child policy, introduced in 1979 and strictly implemented until 2015, originally designed to control population growth. The policy contributed to a decrease in the number of births and a major sex imbalance, due to the traditional preference for males over females in Chinese society. It also contributed to a decrease in the number of women of childbearing age.</p>



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<p><strong>3. Failure of the three-child policy:</strong> To reverse the trend of population decline and alleviate socioeconomic challenges, China has issued a set of measures to encourage childbirth, support care for children and the elderly. Beijing adjusted its one-child policy to two in 2016, allowing Chinese couples to have up to two children after that time, while parents with one child could have two children since 2013. Then, in May 2021, China announced that couples would be allowed to have three children, the so-called "three-child policy," to boost birth rates and address the country’s demographic imbalance.</p>



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<p>China also issued a series of measures in support of the three-child policy. These include tax cuts, affordable childcare and education, and the introduction of childcare leave. Moreover, local governments have started to provide financial subsidies to encourage births. However, the desired results of these broad shifts in reproductive policies have yet to be achieved.</p>



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<p><strong>4. Skewed fertility rates: </strong>China’s fertility rate has steadily declined since the 1990s, reaching an all-time low of 1.28 births in 2020. Comparing it with its competitors, the fertility rate in India reached 2.05 births per woman the same year, and in the United States (US) reached 1.64. Even Japan, famous for its low birth rate and aging population, has a fertility rate of 1.34 births. This is due to the imbalance between men and women in China. The one-child policy left the country with a skewed sex ratio, in the context of many girls being aborted, abandoned, or even killed through selective abortions motivated by the traditional preference for boys.</p>



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<p><strong>5. Declining socioeconomic conditions: </strong>Several factors have exacerbated China’s population decline, including the high cost of living, particularly in large, sprawling cities such as Beijing. Another factor is the economic slowdown caused by the COVID-19 pandemic, especially the country’s strict containment measures. This is not to mention the easing of coronavirus restrictions, which led to a wave of infections and caused an unknown number of deaths, amid concerns over the country’s lack of transparency about the real death toll of the virus since the start of the pandemic.</p>



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<p class="has-vivid-red-color has-text-color"><strong>Potential Repercussions</strong></p>



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<p>China’s deepening demographic shift could have far-reaching effects on its economic growth, aside from many other repercussions, the most prominent of which may be:</p>



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<p><strong>1. Loss of human capital: </strong>One of the direct consequences of population decline is the loss of human capital in the long run. This means fewer entrepreneurs, innovators, and skilled workers fueling the economy and stimulating further growth. An aging workforce and shortage of young workers, due to population decline, could also make it difficult for companies to find the workers they need to meet demand. Given that some companies rely on physical labor more than others do, the shrinking size of the workforce will impact some industries more sharply than others. This decrease will also increase labor costs, which could make it difficult for Chinese companies to compete in the global market. For example, it is likely that the manufacturing and construction industries will bear the brunt of the labor shortage.</p>



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<p>The work dependency ratio in China has also increased, from 37% in 2010 to 45% in 2021, meaning that for every 100 people, 45 need support. This demographic trend can also be expressed in the ratio of workers to retirees. In 2020, there were 3.74 working-age people for every retiree. This ratio is expected to increase to 1.68 people per retiree by 2045. This will have enormous implications for the economy, in terms of pressure on the health system, pension shortages, and the consequent impact on economic spheres.</p>



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<p><strong>2. Shrinking Chinese market:</strong> Coronavirus-related lockdown policies and the downturn in the real estate market drove the Chinese economy to grow by only 3% in 2022—the worst rate in nearly 50 years. However, it is also without a doubt that Chinese society’s demographic imbalance could lead to further economic slowdown as the market shrinks, with fewer customers, especially in light of reduced demand for goods and services and the damaged business environment in the country. The aging society may also lead to a decrease in the volume of consumer spending: Older people are less inclined to spend money than young people.</p>



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<p><strong>3. Questioning government policies: </strong>Chinese government economists have projected that by 2049 China’s per-capita GDP could reach half or even three-quarters of that of the US, while total GDP grows to twice or even three times that of the US. However, these forecasts assumed that China’s population would be four times that of the US in 2049. The real figures tell a completely different story. Assuming that China is fortunate enough to stabilize the fertility rate at 1.1 child per woman, the population in 2049 would only be three times its counterpart in the US. All China’s vital indicators—demographic and economic—would be much worse, which indicates that China’s economic, foreign, and defense policies are based on incorrect demographic data.</p>



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<p><strong>4. Global geopolitical and economic imbalances:</strong> The crisis could, in the end, impact the current world order. There are many concerns about China’s economic decline, which may pose a potential problem for the rest of the globe, given the country’s key role as the second-largest world economy. This is not to mention Chinese authorities acting in accordance with their firm belief in the rising East and declining West. For example, Russian President Vladimir Putin believes that so long as Russia maintains stable relations with a rising China, the retreating West will be powerless to hold it responsible for its aggression against Ukraine. If the opposite is true, the hopes of both parties will not be reassuring to them at all.</p>



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<p>It is clear that what is happening in China will have global repercussions. The size of the Chinese workforce engaged in manufacturing beginning to shrink means higher manufacturing costs in China. This, in turn, will lead to higher prices and global inflation rates, especially in the US and the European Union.</p>



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<p><strong>In sum, China’s population decline has the potential to significantly impact the country’s economy in the years to come. This is due to low birth rates, high death rates, an aging population, declining workforce, increased social security costs, slow economic growth, shortage of skilled workers, loss of human capital, and increased labor costs. These factors could pose a potential global problem, given the major role China plays in the global economic system.</strong></p>



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<p><strong>However, it is not yet clear how the Chinese government will deal with these challenges, and whether its policy package can alleviate them and ensure the country remains competitive in the global economy. This will require investment in the fields of technology and automation to make up for the human element, and especially investment in training and developing workers’ capacities to be able to adapt to changing market conditions.</strong></p>

      

How Population Decline Affects China’s Global Standing