China’s aging population is predicted to reduce GDP growth by 1.1-1.4 percentage points over five decades. Raising retirement ages could help, but the effect will be limited. Economic and social challenges persist.
Key Takeaways
Analyzing China’s aging population through a global model forecasts reduced growth and per capita income. Though raising retirement ages might help, the effect would be marginal. The aging population is set to decrease China’s annual GDP growth rate by 1.1-1.4 percentage points over the next five decades. While raising the retirement age could slightly alleviate the economic impact by increasing labor supply and short-term GDP growth, it will not significantly counter the long-term slowdown. Moreover, pension expenditure as a percentage of GDP will rise, affecting global financial markets.
Projected Decline in Workforce and Income Growth
The declining workforce relative to the total population will slow per capita income growth in China and strain the labor market and social welfare systems. Over four decades of rapid growth driven by favorable demographics, China’s working-age population peaked in 2013. In 2023, the population declined for the first time since 1961, with a significant rise in the elderly population. This demographic shift will challenge labor productivity, investment returns, and increase pension and healthcare costs, necessitating structural reforms in labor markets and public finance.
Source: ASEAN+3 Macroeconomic Research Office
China’s demographic landscape is undergoing significant changes due to its aging population. The country’s fertility rate has been declining, and with advancements in healthcare, life expectancy has increased. These trends have led to a rapidly aging society, presenting profound economic implications.
The elderly dependency ratio in China, which measures the proportion of individuals aged 65 and above to the working-age population, is climbing. This shift adds strain to the labor market, as fewer young people are available to support a growing elderly population. The shrinking workforce challenges economic growth, as businesses might face labor shortages, and productivity may decline without sufficient youthful dynamism.
Moreover, the financial burden on the government is intensifying. China’s social security and pension systems are under pressure to cater to the needs of an increasing number of retirees. This strain is further compounded by the healthcare system, facing escalating demand to provide medical services and long-term care for elderly citizens. Funding these services is challenging, requiring substantial fiscal allocations, which might otherwise be directed towards infrastructure development or technological advancements.
Consumer behavior is also impacted by demographic changes. Older populations typically have different spending habits compared to younger cohorts. There tends to be a higher demand for healthcare products, pharmaceuticals, and age-specific services, like elder care facilities. However, overall economic consumption may decrease as older citizens generally spend less, especially on luxury goods, travel, and technology.
Real estate markets are experiencing a paradigm shift as well. The need for elder-friendly housing and retirement communities is rising. Simultaneously, there is less demand for traditional family homes, impacting property prices and development patterns.
Government policies are attempting to address these challenges. Initiatives like relaxing the one-child policy and encouraging higher birth rates through incentives might help gradually balance the demographic structure. Nevertheless, the effects are yet to be seen, and the urgency to adapt to an aging population remains a critical focal point for China’s economic strategy.
