China Reaches Demographic Point of No Return

In 2022, China experienced its first net population loss in more than six decades. Unlike the one it suffered during the Great Leap Forward famine when a starvation-induced population loss was quickly resolved by an ensuing baby boom, the COVID-driven population deficit has not seen such a rebound. To the contrary, China has embarked on a road of demographic no-return.

China’s current demographic downturn is deep and long-lasting. It is driven by forces that are fundamentally different from those during the Great Leap Forward famine, which spanned from 1959-1961. Instead of the sharp mortality spike that took as many as 30 million lives, population health in China has been increasing. Life expectancy at birth was 68 in 1990, and increased 10 years in three decades to reach 78 by 2020. At the same time, fertility has remained below what demographers call the “replacement level” of around two children per woman for more than three decades, even after China scrapped its long-held one-child policy. China has joined its East Asian neighbors as a country with ultra-low fertility—with no sign of a rebound.

China’s demographic downturn arrived at the same time as its hyper-economic growth began to taper off, and it is easy to assign population as a major culprit.

This demographic turn for China is nothing short of tectonic. China has already ceded its designation of having the largest population in the world to India. By the UN’s projection, China could lose more than 45% of its population by the end of the 21st century, likely falling to just 780 million, or even fewer. What matters more is not a smaller China: even with such a drastic contraction, China could still have a population that is more than 50% larger than the United States by the end of the century. What truly matters is the pace of its population decline and the rapid shift in its age structure. China is on a road of accelerating population aging: In 1990, only about 5% of China’s population was aged 65 and older. That figure has nearly tripled to approximately 15% today. Yet this is only the start of an accelerated process: in the next 25 years, the share of China’s older population is expected to double to 30 percent.

Not Too Quick to Spell Doom

China’s demographic downturn arrived at the same time as its hyper-economic growth began to taper off, and it is easy to assign population as a major culprit. Demography is now grouped as one factor in the “three-Ds” that summarize China’s present economic predicament: debt, deflation, and demography. Indeed, besides a shrinking and aging labor force, demography also complicates and amplifies the woes of the other two Ds. Local governments used to rely heavily on land sale and real estate development for its revenues and to pay off debts. Smaller groups of marriageable young people directly contribute to a cooling real estate market, which in turn worsens local governments revenues. At the same time, increasing expenditures on health care and pension payout for a bulging elderly population adds to fiscal pressures. Concerns for old age support, without an adequate and equitable social safety net, could further dampen consumer spending. Unlike debt and deflation, for which the government has policy tools at its disposal, there has been no effective measures to turn the demographic tide. No country has successfully raised fertility with government policies. China’s three-children policy, which has been ineffective, is no exception.

Yet it is too simplistic and premature to spell China’s economic doom purely based on its demographics. China’s recent economic slowing can be traced to many sources, commonly observed in countries following periods of rapid economic growth. Rising labor cost is blamed when, as is the case with China, an economic model that relies on abundant cheap labor becomes increasingly unsustainable. Higher incomes for workers, however, can translate to higher standards of living, higher productivity, and more consumption—all potentially beneficial for an economy.

China is not the only country in the world experiencing population aging and decline, yet it is going through this unprecedented global experience with many of its own characteristics.

One needs to be further reminded of two important new characteristics of the Chinese labor force, characteristics that could potentially offset the negative economic effects of a smaller and older labor force. During China’s decades of historical economic boom, its population also became the most educated and healthiest in its entire history. College annual enrollment, for instance, rose six-fold in about a decade, from 1.08 million in 1998 to 6.6 million in 2010, and further to 9.68 million by 2020. With annual births now dipping below 10 million, such an enrollment capacity means that even without any further expansion, every person born from now on could have a future spot in a higher educational institution. In 2020, more than 50% of the 20 to 24-year-olds already had a college education, rising from just 3% in 1990. China’s highly educated young labor force is already paying off economically, as seen in exploding technical innovations and applications from robots, automations, electric vehicles, logistics, and more.

In the absence of healthy economic growth that can bring in significantly more revenue, the government will have to resort to increasing taxes, reducing expenditures, or both.

Partly due to improved health, many Chinese are working to a much older age. Nationwide, China’s 2020 census reports that more than one third of all people aged 60-64 and over one quarter of those aged 65-69 still drew their main source of living from labor income. This is not only the case for those in rural areas who can't rely on government pensions; only less than 8% rural residents in their early 60s reported pension as their main income source, compared with more than two thirds of urban seniors. Among those aged 60-64, more than half of rural populations and about 13% of urban residents still relied on their work as a major source of income. A person who reaches age 60 can now expect to live for another 21 years; 80% of that time is what is called healthy life expectancy. 

Legitimacy at Stake

The more daunting challenges ahead are likely to be social and political issues. China is not the only country in the world experiencing population aging and decline, yet it is going through this unprecedented global experience with many of its own characteristics. One such characteristic is the legacy of its one-child policy, for which the full consequences are yet to be fully appreciated. For the nearly 40 years of China’s one-child policy, an estimated 200 million only-child families were created. Soon, parents of China’s earliest one-child generation will enter an age that requires increasingly more care and support— that cannot be accomplished by robots. At the same time, these only children are under increasing pressure to juggle the demands of careers, raising children, and supporting parents. Fertility has been so low in part because of the anxieties that these only children have.

The most serious challenge resulting from China’s demographic turn could be political. As China has ascended to an upper-middle income society, and with fast economic growth in its rear-view mirror, the political legitimacy of its government will increasingly hinge on its ability to deliver social welfare benefits commensurate with the country’s income. China’s current social safety set is still highly inadequate and unequal. More than 200 million migrants from rural areas live in cities where they are not entitled to the same benefits as local residents. At just 3%, the latest increase in pension payout (for those who have it) is the lowest in more than a decade. Government spending on social benefits is increasing rapidly: its spending on education, health care, and pensions as a share of the country’s GDP more than doubled from 6.1% in 2007 to 13% in 2020, a share that amounted to about half of all government expenditures. Social spending in these categories in the 2010s far outpaced the increase in defense and domestic public security expenditures. Still, population aging with even a moderate increase in benefits could push the share of government spending on these social benefits to close to 30% of the GDP by mid-century, a share that is equivalent to all of current government expenditures.

As these harsh new realities unfold, leaders in China will be hard-pressed to find solutions—many of which are unpleasant and risky. In the absence of healthy economic growth that can bring in significantly more revenue, the government will have to resort to increasing taxes, reducing expenditures, or both. So far, Chinese leadership has not shown the political courage and wisdom to do that. One example is its reluctance and inability to raise the low official retirement ages established in the 1950s: 60 for men, 55 for women, and 50 for women working in factories.

For China to meet its demographic challenges, a healthy economy and continued growth in government revenue must remain the highest priorities. A hospitable international environment is in the interests of Chinese leaders to meet its goals of economic growth and technological advancement. Economic and political challenges, which will amplify with demographic changes in the coming decades, should compel Chinese leaders to seek and maintain better relations with the United States and in Western Europe, with countries that have both the markets for China’s export products and innovations and new technologies that China needs. While a worsening international environment can fan nationalist flames and supply temporary psychological relief at home, it won’t do much to help satisfy an aging society’s real needs or maintain the political legitimacy of its leaders.

A leading expert on demography, aging, and inequality, Wang Feng is professor of sociology at University of California, Irvine. He is also the author of China’s Age of Abundance: Origins, Ascendance, and Aftermath(Cambridge University Press, 2024), which can be found at https://a.co/d/00xjgtmc.

Cover photo: Older Chinese adults at a bus stop. By 2042, more than 30% of China's population is expected to be over the age of 60. Shanghai, June 3, 2013. Shutterstock/TonyV3112.