Opinion - News Analysis   

China greying too fast

Pallavi Aiyar

China's one-child policy, which helped the country make rapid economic progress, has also resulted in its population ageing faster and could apply brakes to its economic growth.

A man and his daughter on a sidewalk in Beijing on the eve of World Population Day, July 11. — PHOTO: AP

TWENTY-FIVE years after embarking on a major experiment with demographic engineering, China today may do well to reconsider the continuation of its one-child policy. Faced with one of the fastest ageing populations the world has ever seen, the country's under-funded pension system, soon-to-be shrinking working age population, and dramatically imbalanced sex ratio are all factors that could combine to act as sharp brakes on its economic growth.

China's one-child policy rule was put in place in 1979 by Deng Xiaoping, the architect of the country's experiment with market economics. The policy represented a wrenching change from the traditional importance of large families in the middle kingdom and from Maoist thought which firmly regarded China's huge population as an asset.

But for Deng, controlling China's burgeoning population was an integral part of putting the country on the fast track to economic modernisation. In many ways his thinking has been validated. Beijing says the policy has prevented about 400 million births since its introduction. According to a National Population and Family Planning Commission of China research report, the sharp decline in China's fertility rate between 1978 and 1997 contributed an extra 1.2-2 per cent to annual GDP growth. Population policies are also thought to have boosted labour productivity in China by 0.76-1.5 per cent annually.

Serious challenges

But despite these successes, falling fertility and rising longevity are leading to new and potentially serious demographic challenges. According to United Nations data, China is on course to age faster than any other country in history. Barring a radical change of policy, the country's median age is set to shoot up from around 32 today to 39 by 2025 and at least 44 in 2040. Moreover, the percentage of its population that is working will peak by 2010 and the ratio of workers to those retired will decline from six to one in 2000, to two to one by 2040.

In 2000 the percentage of China's elderly population (60 years and above) made up 11 per cent of the total population. According to the U.N., by 2040, 28 per cent of the country's population will be "elderly."

This drastic greying of the population means China will need to grapple with age-related fiscal, social, and productivity challenges that most experts say it is far from able or prepared to meet. "We will soon have the social burdens of a developed country while our economic situation is still that of a developing country," says Liu Hong Yen, a director of the China Population and Development Research Centre.

Only Japan has aged as rapidly as China but with the crucial difference of having become rich before it became old. When Japan had the same proportion of people 65 years and older as China did in 2000, its level of per capita output was three times higher than that of China. China's essential problem then is that it is becoming old before it gets rich.

Faced with a situation where 400 million people will be over the age of 60 by the middle of this century, the Chinese Government has to seriously start thinking about creating an effective social security umbrella. But this is a task that is likely to prove both extremely difficult and expensive.

Currently, Beijing demarcates only a small percentage of government spending (about two per cent of GDP) on social welfare; the majority is used to heavily invest in creating infrastructure, factories, and machinery. A patchy social insurance fund has been in place since 1997 but since it only covers full-time workers whose employers are willing to contribute their share to the fund, it is estimated that a mere 17 per cent of the population is, in fact, eligible for pensions. The large majority of the rural populace has no pensions at all.

Moreover, China's implicit pension debt, owed to the millions of workers from state-owned-enterprises who were laid off in the 1990s, is estimated to be some $1.5 trillion. According to a recent Deutsche Bank research report, repairing the existing pension crisis will cost China a minimum of seven per cent of its GDP.

For most ageing Chinese today, the pension system is the family but, according to Dr. Liu, the one-child policy has contributed to the breaking up of traditional networks of support and caring for the elderly.

The financial demands of funding an extensive social security system are not the only reason why analysts believe that China's current demographic trends may result in the reduction of several percentage points of its economic growth rate, beginning in the middle of the next decade.

Looking several years ahead, demographers are predicting that the supply of entry-level industrial workers in China will start to shrink. Dali Yang, a professor of political science at Chicago University, calculated in a recent paper that over the next five years itself, the number of people in China aged 15-19 will shrink by 17 per cent.

Recently Xinhua, China's official news agency, carried an interview with Cai Feng, director of the Labour-Related Economics Research Institute, according to whom China will enter a period of "demographic liability" around 2015. By contrast, the article pointed out, India will enjoy a greater demographic dividend with the working age population expected to rise as a share of the total till 2050.

According to Morgan Stanley, by 2020 the average Indian will be 29 years old compared to 37 for China. Thus just as China will have to confront the burden of caring for an army of retirees, India will continue to have more and more workers entering the highest producing/consuming phase of their lives.

Alarming gender imbalance

And the implications of an ageing and shrinking population for the sustainability of China's economic growth are not the only challenges that the one-child policy has created. According to Professor Mu Dong Guang of the Population and Development department of Beijing's People's University, an even more pressing concern that is worrying officials is the alarming gender imbalance in China, which is one of the worst in the world. Illegal abortions and infanticide of unwanted girl children by parents who can only have one-child have created a situation where boys outnumber girls by a ratio of 118 to 100.

All these considerations have led to an array of scholars in China arguing that a change in the country's population policy is warranted. Suggestions range from allowing a second child as long as the interval between the first and second child is sufficiently long, to the more ethically complicated idea that those with a university degree or a certain income level be allowed more than one child.

In fact, the one-child policy as it exists today is more of a patchwork of rules rather a single unified policy. Minority communities receive automatic exemptions and farmers whose first child is a girl are allowed to have a second. Recently, couples living in Shanghai have been allowed to have two children if both parents are only children or if one or both parents are divorced and desirous of a second child in the new marriage. Other upwardly mobile parents are choosing to pay fines in order to have more than one child.

Dr. Liu thus believes that "it's no longer a question of whether the one-child policy will be changed, but when." But despite some minor relaxations, the National Population and Family Commission has categorically ruled out any substantial change in the policy until the end of the current Five-Year Plan period, in 2010. For the moment, China's little emperors will continue to reign supreme.

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