What China’s baby woes mean for the country’s economic prospects

Crystal, who wishes to remain anonymous, is a 26-year-old woman living in Beijing. Unlike most Chinese women of previous generations, she is unmarried and currently faces no pressure to marry.

“I think it’s because my family members are either never married or divorced,” she laughs when asked why.

It appears to be a common sentiment among Chinese young urban women. According to a 2021 survey of nearly 3,000 people between the ages of 18 and 26, more than 40% of young women living in cities do not plan to marry, compared to less than 25% of men. This is due, in part, to rising childcare costs and the lingering effects of China’s one-child policy.

“Having only one child or none at all has become the social norm in China,” says Yi Fuxian, a senior scientist in obstetrics and gynecology at the University of Wisconsin-Madison and a vocal opponent of the one-child policy.

“The one-child policy affects the economy, social environment, education, and almost everything else,” he adds.

This is a concerning trend for Beijing because China’s population is declining. Its birth rate has been slowing for years, but its population will fall for the first time in 60 years in 2022.

That’s bad news for the world’s second-largest economy, where the labor force is already shrinking and an aging population is putting strain on the welfare system.

China currently has approximately 875 million people of working age (those aged 16 to 59). They make up slightly more than 60% of the population.

However, the figure is expected to fall by another 35 million over the next five years, according to an official government estimate in 2021.

“In 2018, China’s demographic structure was similar to Japan’s in 1992,” Mr Yi said. “And by 2040, China’s [demographic structure] will be similar to Japan’s.”

Until last year, many economists predicted that China’s growth would surpass that of the United States by the end of the decade, capping the country’s extraordinary economic rise.

But Dr Yi says that is now looking unlikely, adding “By 2031-2035, China will be doing worse than the US on all demographic metrics, and in terms of economic growth”.

China’s average age is now 38. However, as the country’s population ages and birth rates continue to fall, there are concerns that China’s workforce will soon be unable to support those who have already retired.

In China, men retire at the age of 60, while women retire at the age of 55. Those over 60 now account for nearly a fifth of the population. In Japan, which has one of the world’s fastest aging populations, nearly one-third of the population is 65 or older.

“Population aging is not unique to China,” says Louise Loo, senior economist at Oxford Economist.

She claims that the number of retirees has already surpassed the number of contributors, resulting in a drop in pension fund contributions since 2014.

The pension fund in the country is administered at the provincial level and on a pay-as-you-work basis, which means that contributions from the workforce pay the retirees’ pensions.

As a result of these flaws in the system, Beijing established a fund in 2018 to shift pension payments from richer provinces like Guangdong to those with deficits. However, according to a 2019 report by the Chinese Academy of Social Sciences, the country’s main pension fund will be depleted by 2035 due to its shrinking workforce.

Then, in 2022, China launched its first private pension scheme in 36 cities, allowing people to open retirement accounts at banks and purchase pension products such as mutual funds.

However, Ms Loo questions whether many Chinese people, who typically invest their savings in more traditional avenues such as real estate, would instead turn to private pension funds.

These issues are not unique to China; both Japan and South Korea have an aging population and a shrinking labor force.

Mr. Yi stated that Beijing is poised to replicate Tokyo’s policies to reduce parenting costs, but he adds that “China, which is ‘getting old before it gets rich,’ does not even have the financial resources to fully follow Japan’s path.”

And this isn’t the only issue plaguing Beijing. There’s also a growing online youth movement to “lie flat”. It exhorts workers to reject the struggle for professional advancement and promises relief from the stresses of life and work in a fast-paced capitalist society. Add to that a high youth unemployment rate, which peaked last July at 20% of those aged 15 to 24 being unemployed.

Mr Yi puts it this way: “The labor force is the flour, and the pension system is the bread-baking skill. Even with the best bread-making skills, it is impossible to make enough bread without enough flour.”

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