Why Chinese demographic challenge will hit Beijing and world harder

At the recent Third Plenum meeting in China, party leaders agreed to gradually increase the national retirement age over the next five years. China currently has one of the world’s lowest retirement ages, set at 60 for men, 55 for women in white-collar jobs, and 50 for women in blue-collar roles.

Although the specific new retirement age has not been disclosed, this decision coincides with a period of economic challenges in the country, including a sluggish economy, rising youth unemployment, and soaring housing prices.

China’s demographic issues, however, are not new but stem from decades of family planning policies, particularly the ‘one-child’ policy. This demographic shift has significantly contributed to China’s ongoing economic crisis and is expected to exacerbate it in the coming years.

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The origins of Beijing’s current demographic challenges can be traced back to the introduction of the ‘one-child’ policy in 1980. Aimed at spurring economic growth, the National Health and Planning Commission mandated that couples limit themselves to one child as part of their family planning efforts.

Compliance with the policy was enforced through a mix of incentives and penalties. ‘Violators’ faced various punishments, ranging from fines and loss of government jobs to severe violations of women’s reproductive rights, including forced abortions and sterilisations.

The cultural consequences of this policy, such as an increase in female infanticide, further skewed the country’s gender ratio in subsequent years. To avoid penalties, many Chinese citizens concealed the birth of their second child.

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Those who could not afford to pay fines—particularly the working-class population, which Communist China claims to prioritise in its development goals—were denied the ability to register their second-born children in the national household system, effectively stripping them of legal access to healthcare and education.

According to official data from China’s Ministry of Health, the policy led to approximately 336 million abortions, 196 million sterilisations, and 403 million intrauterine device insertions, many of which were forced. Beijing not only engaged in severe human rights abuses but also profited significantly from them.

Three decades of stringent enforcement of the ‘one-child’ policy, combined with a cultural preference for male children, have resulted in a significant gender imbalance in China, with a disparity of nearly 50 per cent. This prompted the Chinese government to reconsider the ‘one-child’ policy in 2008.

Since then, the policy has undergone several modifications (relaxations) before its official abolition in 2016. However, the consequences of the ‘one-child’ policy persist as China continues to struggle with a skewed gender ratio at birth.

The ratio has only slightly improved, declining from 118 males per 100 females (2010 census) to 111.3 per 100 (2020 census). The psychological and societal impacts of the state’s enforcement of the ‘one-child’ policy have also left a lasting mark on the total female fertility rate.

Over just two decades, China’s fertility rate plummeted from three births per woman in the 1980s to a historic low of 1.09 in 2022, far below the 2.1 level needed to sustain a stable population. Once the most populous country in the world, China’s ranking fell in April 2023, when India surpassed it in global population.

China has experienced the slowest population growth for the second consecutive time, recording approximately 1.409 billion people by the end of 2023, marking the first such decline in six decades.

Of particular concern is China’s inverted age structure, with a rapidly growing ageing population (those aged over 65), now comprising about 13.5 percent, up from 8.87 percent in the 2010 census.

In contrast, the working-age population (aged 16-59), which accounts for 62.3 percent of the total population, has decreased by 40 million within a decade, according to the latest census data.

This trend is anticipated to persist in the coming years. The ongoing increase in the elderly population is straining the country’s pension budget, an issue that has become more pronounced since the pandemic.

China’s retired population (aged 60 and above) now represents 21 per cent of the total population, amounting to 296.97 million as of 2023, while life expectancy has risen to 78 years.

According to a 2019 estimate, the state pension fund could be depleted by 2035. Given the pre-pandemic forecast, the economic impacts of the pandemic are expected to exacerbate the strain on the pension fund, especially as 300 million people are projected to retire over the next decade.

The reduction in medical benefits for pensioners, which sparked the “grey hair” protests last year, highlights that China is beginning to feel the economic impact of its demographic challenges.

The country’s stringent ‘zero-COVID’ policy significantly slowed its year-on-year GDP growth, with 2022 recording the lowest growth rate of just three per cent. Although GDP has seen a slight improvement since then, achieving the five per cent growth target remains a formidable challenge.

Youth unemployment (aged 16-24) reached a record high of approximately 21.3 per cent in June 2023, continuing a rising trend that began in 2022. In response, Beijing decided to stop publishing official youth unemployment data.

Recently, it has resumed data publication using a new method, which is believed to show a lower figure, suggesting an apparent improvement to 14.9 per cent since December last year.

The decline in China’s overall population, coupled with rising youth unemployment, is likely to have significant repercussions on the global economy, given that China is the world’s second-largest economy.

This is expected to affect China’s import-export demands, industrial output, and, consequently, global supply chains, particularly for those countries heavily reliant on Beijing.

The economic slowdown in China, stemming from its demographic challenges, is therefore anticipated to have a ripple effect on the global economy. China’s attempts to address its demographic issues, such as the introduction of the three-child policy in 2021, have yet to yield the desired results.

Economic measures, such as raising the retirement age and reducing pension benefits, are viewed as anti-working-class policies. The recent reforms in retirement age, which have sparked public outcry, reflect this sentiment.

These measures are seen as government efforts to delay access to pensions, limit youth entry into the job market, and perpetuate unequal pension benefits between blue-collar and white-collar workers.

China’s demographic challenges, therefore, are far more complex and severe than they may initially appear, with their inevitable impact on global economic dynamics still looming.

The author is Chairman of Law and Society Alliance, a New Delhi-based think tank. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.