China has a looming demographic crisis

And it will impact the world when it hits

Hong Kong. Photo by Gigi on Unsplash

Quick note: apologies for the delay in this week’s article. Normally I like to get them out Wednesday mornings but it just wasn’t ready in time. So here it is! Wednesday afternoon!

For as many people who live in China, we probably don’t pay attention to it enough. Which is saying something because it’s not like China is some unknown entity, but it’s still rather enigmatic isn’t it? Like, for example, outside of Shanghai, Beijing, or Hong Kong (which isn’t even a “major” city by China’s standards) can you name another one of China’s largest metropolises? Chengdu? Chongqing? Xi’an? Maybe, but you’d be hard pressed to make the argument that these cities are as globally known as Paris, London or even Buenos Aires.

In fact, I even have a whole video about it if you want to watch that:

But for this article, I really want to talk about something else that’s not talked about enough: China’s impending demographic issue.

So, for decades, China’s massive population was seen as a key driver of its economic growth. But it has a looming demographic issue that threatens to undermine its future and stability. This is a budding crisis that almost no other country is facing, even European countries that have a similar downward population trajectory. And it’s largely because, after years of stringent population control measures, China is now grappling with a rapidly aging population and a shrinking workforce, a combination that could have profound consequences for the country… and the world. We rely on China for a lot these days if you didn’t know.

Now, at the heart of China’s demographic crisis lies the one-child policy, a measure implemented in 1979 to curb runaway population growth. Back then, China was a very different place. And, having suffered decades of malnutrition and even famine at times, more people wasn’t really seen as a good thing. And so, to the delight of Chinese politicians, the policy was successful in achieving its primary objective: fewer people being born. But it has also had a number of unintended and far-reaching consequences. The most significant of these has been a dramatic decline in the country’s fertility rate, which now stands at a mere 1.15 children per woman, well below the replacement level of 2.1 needed to maintain a stable population.

Of course, we can’t blame a single policy on this fertility rate. Compounding the effects of the one-child policy are a number of other factors, including the rising costs of raising a child, changing social attitudes towards marriage and family, and a growing desire among young people to pursue education and careers. As a result, even after the one-child policy was relaxed in 2016 and then replaced with a three-child policy in 2021, birth rates have failed to rebound. In fact, in 2022, China’s population declined for the first time in six decades, a trend that is projected to continue and dramatically accelerate in the coming years.

A graying future

China’s population pyramid. Typically you want a much larger amount of young people.

The consequences of this demographic shift are already beginning to be felt. With fewer young people entering the workforce and a growing number of retirees, China is facing a severe labor shortage. This is now putting upward pressure on wages, eroding the country’s competitive advantage in manufacturing, and threatening to slow economic growth. Many companies, for example, have been relocating factories to countries like Vietnam and Cambodia because the previous economic advantage of China has withered away.

Now, at the same time, the aging of the population is placing an immense strain on the country’s social safety net. With a smaller working-age population to support a growing elderly population, China’s pension and healthcare systems are facing a looming crisis. By 2050, it’s projected that 39 percent of the Chinese population will be over retirement age, creating a dependency ratio that will be difficult to sustain.

The demographic crisis is also having a profound impact on Chinese society. The traditional family structure, in which children are expected to care for their aging parents, is breaking down. This is creating a growing need for more formal elderly care services, a sector that is already struggling to keep up with demand. Furthermore, the gender imbalance created by the one-child policy, with a significant surplus of men, has led to a number of social problems, including an increase in human trafficking and social instability. So what’s China going to do?

This isn’t a secret. I’m not revealing anything here to China. In fact, the Chinese government is well aware of the demographic challenges it faces and has implemented a number of policies aimed at encouraging couples to have more children. These include financial incentives, tax breaks, and improved access to childcare. However, these measures have so far had little impact, and it is clear that a more comprehensive and long-term approach is needed.

It’s also not really clear if there is a solution here. At least not in the sense of getting more people to have babies. At this point, most countries and territories have fertility rates below the 2.1 threshold. And, as far as I can tell, no country has really been able to figure out how to increase their respective fertility rate significantly enough to reverse a demographic trend. Certainly a country the size of China would need an absolutely massive and unprecedented response. And I’m not sure if even that would work.

At the very least, addressing China’s demographic crisis will require a multi-faceted strategy that includes not only measures to boost the birth rate but also reforms to the country’s pension and healthcare systems, as well as efforts to promote automation and increase productivity. It will also require a fundamental shift in social attitudes towards family and a greater recognition of the value of a more balanced and sustainable approach to population growth. The path ahead will not be easy, but the future of China may well depend on its ability to navigate this demographic minefield.