The Great greying of China

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 The Great greying of China

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• One child policy (OCP): Chinese Communist Party (CCP) launched the OCP in 1979 as it sought popular support after the death of 60 million people during Mao’s programs and campaigns of ‘Great leap forward’ and ‘Cultural revolution’. The party feared losing legitimacy and wanted to produce significant per capita income gains.  
• OCP and the numbers: 

1. China reported 1.6 births per woman officially in 2017, the unofficial number was 1.05. This is much less than its population replacement rate of 2.1. Birth rate of female children was even more dismal.
2. Proportion of people over 65 years of age is estimated to increase from 10% in 2010 to 32.6% in 2050.
3. Its labour force (ages 20-64) will reduce by about 27% in 2050 over 2017 to 787 million.
4. Thus, China will be dominated by older people in the coming years. If China can stabilize its fertility rate at 1.2, its population will fall to 1.07 billion in 2050. 

• OCP and some trends: 

1. OCP changed China’s child-bearing attitudes, parents did not want two children despite lifting of one-child-limit in 2016.
2. Its population has started contracting from 2018 onwards. China’s local authorities inflate birth and school enrolment numbers for more government funds. 

• Impact of aging population: China’s expenditure on health, social welfare and pension will increase. Its savings rate will decline. Decrease in number of young people will lead to a decrease in manufacturing, sports and government revenue. China will get old before reaching per capita income and other levels of rich countries like the US, Singapore and Japan. China’s armed forces are struggling since OCP children aren’t fit for armed forces. 
• Declining population may not create a richer society either: 

1. Smaller population reduces intellectual exchange between diverse groups and hence reduces number of innovators.
2. Developed countries raise total factor productivity (TFP) growth to offset the effect of declining population. But China has already done this through reforms in state-owned enterprises and shift of migrant workers from agriculture to manufacturing. China’s TFP increased between 1980s and 2015 before declining thereafter. 

• Three factors for improving TFP: a) Market reforms b) Improvement in governance and c) Scaling-up of human skills in manufacturing and services are important for improving TFP. 
• Market reforms: China’s planned market reforms have not translated into action as services such as banking and insurance do not benefit from open economies, independent judiciary remains absent, and there is a lack of creative education. Government investment has driven China’s economic growth after 2008 which has created unproductive assets. 
• Governance: International organizations such as the World Bank have never rated China high on government effectiveness. In the recent years, instead of more representation to new interest groups China has curbed dissent and established rule of control over the Chinese society. 
• Human resource improvement: There is a stark difference in urban and rural high school pass rates. This will impact TFP growth since 40% of China’s population lives in rural areas. All countries that have progressed from middle to high income status had skilled workforce with more than 75% high school graduates.
• Summary: China faces the challenge of aging population which will have multidimensional impact on its economy and society. China doesn’t seem to be following in the footsteps of developed economies of real market reforms and human resource improvement. President Xi is focused on bureaucratic improvements that increase his government’s control over the economy. Emerging technologies and rapid urbanization may also not help in the absence of reforms in economy, governance and education. China is also likely to face a hostile external environment. Its economic growth may decline as the effect of aging population becomes more pronounced.

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