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China steps up push to avoid growing old while still poor

Financial Times recently published an article on how the Chinese government is trying to plan its economy to better adjust to an aging population that is expected to peak in 2050 with around 35% of population over 60. According to the article, this is a culmination of a series of policies actually started at the same time as when the one-child policy was enacted.

Compared to other Western articles that tend to demonize China’s one-child policy, the FT article offers an interesting read of China’s policy of population control. According to Chinese government estimates, today’s population would be 250-300 million larger were it not for its one-child policy.

I usually cringe when I hear people categorically attacking China’s population control policies. While the one-child policy is well known throughout the world, China actually has had enacted other policies in its history, including its “late, long, few” initiative which promoted people to have children later in life and to lengthen the times between pregnancies.

Since the mid 1960’s, China’s birthrate has consistently dropped. Is it a coincidence that since the mid 1960’s, China’s economic growth has also consistently grown?

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Before I provide the Financial Times article, I just want to make a quick comment about population policy in in general. I think in general, it is good and important for a government to set population policy – just like it’s good and important for governments to set environmental and economic policies. In fact, to the extent population control helps future generations become prosperous without putting an unsustainble drain on the environment, it serves a basic “human right.”

People today have probably all forgotten about the Malthusian Trap. The Malthusian trap is based on the observation that the population of all organisms, be a bacteria or animals or plants, are always checked in nature. Left to their own devices, the population will grow and grow until it outstrips its resources. In nature, the fast population growth usually end in dramatic population crashes.

The notion of the Malthusian trap as it applies to humans was taken seriously until the 1980’s, after which it kind of fell out fashion when it became clear that technology innovation will allow human population to grow far beyond what people had expected in the 1950’s.

But a temporary respite – a technological dividend – should not get us to forget the ticking time bomb that is still there if we let our population control beyond what is sustainable.

I find it startling strange that people today in the West can get all worked up about climate change, fracking, or deforestation, but not care a soul about population explosion. Some even get critical when it comes to population policy and control. Such is human myopia and politics.

Anyways, that was a long aside. Without further adieu, below is the article by Financial Times.


China steps up push to avoid growing old while still poor

Beijing’s population ageing strategy offers lessons for other countries

In November China’s State Council launched a national medium and long-term plan for proactively responding to population ageing.

Much is made of fears that China may never get “rich” due to the weight of caring for an ageing population while still being a developing country. But many observers miss that Chinese policymakers have been preparing for “getting old before rich” for decades.

Beijing’s latest ageing policy paper not only prepares for population ageing directly, but also indirectly by pushing the economy even deeper in the direction of higher-productivity per capita sectors, meaning China be better prepared to accommodate the ageing era than is widely understood. The Chinese approach to economic demography also offers a pragmatic and timely policy lens for all countries, old and young, and rich and poor.

The demographic backdrop is that China’s 1.39bn population is expected to peak at 1.44bn in 2029. Thereafter, and in step with several dozen other countries, the population will go into decline.

By 2050, the share of those aged over 60 is projected to peak at 34.9 per cent of the total population, or 487m people. The precise numbers are disputed and may vary, given that China’s total fertility rate, the number of births per woman over their lifetime, may fall below the underlying assumptions and toward the super-low levels of Hong Kong, Taiwan and Japan.

In mapping out a way for the economy to continue to advance regardless of unfavourable demographics, the State Council’s new Medium and Long-term Plan for Responding Proactively to Population Ageing first establishes that by 2022 China’s institutional framework for addressing population ageing will be in place; and that by the middle of the century the framework is mature. All being well, the economy will, for example, gradually adjust to the fact that caring and medical services are expected to comprise 26.2 per cent of the economy by 2050, against 7.3 per cent in 2015.

The new plan specifically addresses five aspects of population ageing: 1) improving national income distribution by increasing the level of payouts and sustainability of the social security system; 2) improving the effective labour supply in an ageing society via better-quality jobs and life-long learning; 3) implementing high quality health and health-related education services; 4) enhancing the application of technology including assistive technologies; 5) fostering a social environment in which senior citizens are cared for and their rights are protected.

Importantly, it also calls for an economic model that is conducive to China’s elevated level of population ageing. Hence it emphasises the need to shift from quantity to quality of human capital, that is, to transition from a demographic dividend growth model to a “talent dividend” model. The strategy says China should accelerate the accumulation of human capital and increase in total factor productivity. Far from stagnating under the weight of ageing, China’s economy may in contrast be propelled even more rapidly into new and more advanced sectors.

This agenda is broadly complementary to Made in China 2025, the country’s high-tech and innovation-oriented strategy. It is also a mere extension of the demographic strategy that China has adopted since the early 1980s starting with capitalising on its then emerging low-wage demographic dividend.

In education, for example, China has had universities for the elderly since 1983, with 70,000 opening up across the country since. These offer courses as diverse as dancing, online shopping and English for travellers, alongside more traditional disciplines. For western universities pushed to squeeze more blood from the undergraduate stone, a new range of fee-based courses for older citizens, at home and from east Asia, may become a useful new revenue stream. Singapore’s Nanyang Technological University last month launched a “future proof” Master of Science in Applied Gerontology. Indeed, China may have the world’s largest stock of elderly people, but is not the fastest ageing (South Korea); the most aged (Japan); or the only rapidly ageing developing country (eg Thailand).

China alone, however, has been uniquely preparing for this period for decades, due in part to an extrapolated legacy of its one-child policy. Following the implementation of this policy in 1980 planning began almost immediately, not just for the ensuing low-wage demographic dividend-driven growth, but also for later rapid ageing.

The China National Committee on Ageing was set up as far back as 1982. Today, it is the National Working Commission on Ageing that oversees strategy formulation, policy research and development, interdepartmental plan implementation and co-ordination, and safeguarding of the rights and interests of the elderly.

Alongside, Beijing’s five-year planning process has progressively accounted for China’s shifting labour supply characteristics, in terms of availability and relative cost. There has been a focus on education to ensure that the next, smaller, cohort of workers are better educated — and more productive per capita — than the current crop.

Pension promises have similarly been kept relatively low to ensure these do not put excessive pressure on state finances — something today’s leaders in Europe and the Americas perhaps wish their own predecessors had better considered.

With China’s pensions under strain nonetheless, in March the ministry of finance transferred a near-7 per cent stake in the People’s Insurance Company of China into the state pension fund, while foreign investors are also being incentivised to enter the pension sector. In other words, China is utilising its population-ageing requirements to incrementally reform and expand areas such as health and aged care that have long been relatively sheltered from private sector and international investor interest.

China’s national population and economic policies are unique. Its systematic and integrated long-run approach to economics and demography may, however, be a very useful approach for all countries to consider, whether rich or poor, young or old.

Whether China’s approach and preparations are enough to prevent an old before rich-driven stagnation, nonetheless, waits to seen. On the other hand, there should be no confidence that population ageing in rich countries, whether Italy, Japan or France will not sap productivity growth, sending old-after-rich high-income countries into relative and absolute decline, in the absence of a new inter and intra-generational bargain.

Time will tell if there is durable worth in China’s decades-long demographic strategy. It is at least worth being open minded and taking time to understand the approach.

Lauren A Johnston is a research associate at the China Institute, School of Oriental and African Studies, University of London, and founding director of New South Economics, an economic research and strategy consultancy

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