China’s premature ageing poses threat to stability and growth – and the global economy

Asia has long ranked as one of the world’s fastest growing regions – today it is also the fastest greying region.

Ageing societies are a problem the world over, with far-reaching implications for pensions, welfare, social stability and growth potential. For Asia, spectacular advances in prosperity have made the demographic challenge particularly acute, since a rapid rise in living standards goes hand-in-hand with longer lives and fewer babies.

Japan has been at the forefront of the crisis; South Korea and Taiwan are hitting a similar demographic wall. Yet Asia’s most dangerous demographic time-bomb ticks not in these mature economies but in China, Asia’s emerging giant. The world’s second largest economy grapples with unique challenges that carry troubling consequences not only for China but the global economy.

China’s demographic problem crept up on it by stealth. A one-child policy designed to contain the world’s biggest population naturally generated assumptions that it had too many people, not too few. Today, its fertility rate stands at 1.4 births per woman, far below the replacement rate of 2.1. China’s working age population is projected to shrink by a quarter to 700 million by 2050. Meanwhile China’s population aged 60 and above is forecast to grow by 50 per cent to 300 million by 2030. India is expected to overtake China, population 1.38 billion, as the world’s most populous nation within a decade.

China’s sheer size makes its demographics dangerous. A population-driven downturn in such a huge and economically-vital nation would have huge knock-on effects in the globalised world. And other distinctive factors give further reason for worry. First, China faces not only the twin problems of a shrinking workforce and ageing population, but a third dilemma in a skewed gender ratio of roughly 115 boys born for every 100 girls (due to gender-selective abortions).

Up to 30 million Chinese men – many impoverished and poorly educated in the countryside – are doomed to life without a marriage partner. That alone may not be a recipe for explosive social unrest. But combined with other problems – the burden of caring for elders, a runaway debt load, endemic local government corruption, wanton land appropriations, and (perhaps chiefly) the realisation that, for countless millions, the promised “Chinese Dream” may be a mere chimera – the prospects for social cohesion seem less promising.

China’s tragedy is that it has hit its demographic wall while still an emerging economy. Japan’s population crunch began long after it became a mature developed economy, with welfare state buffers to ease the burden. China’s fertility rate of 1.4 births per woman is low even for a wealthy country, considering the developed world average is 1.7. For a developing country – with GDP per head of about a sixth of Singapore and a quarter the US at purchasing power parity – it’s calamitous. Rich countries with similar birth rates to China may face decline, but chances are good the ride will be fairly gentle. China’s looming demographic bust can be expected to be traumatic. A shrinking pool of younger Chinese who have not achieved middle-income status will be burdened with supporting the swelling ranks of elderly Chinese, even as central authorities find themselves with fewer resources than advanced economies to ease the pain.

For the world economy, China’s demographic problem is troubling because it means tearing up a script that has become global corporate mantra. This is the stage at which China should begin moving from an investment-led to consumer-led economy, driven by a middle-class eager to mop up the products of global multinationals. As growth in home markets becomes harder to find, corporations have looked to China and its consumers as the engine of growth.

China has also driven a commodities boom on the back of investment in highways, housing projects, communications towers and the like – all envisioned to create a suitable environment for the great Chinese middle-class. The emergence of this middle-class – at least in the form and magnitude envisioned – is today thrown into question. To expand, economies need a combination of population, investment and productivity growth. China is peaking on all three fronts – and that should be deep cause for concern, both for China and the world.