The population situation is the most fundamental and crucial aspect of the state of a nation. At the end of 2022, China had a population of 1.41175 billion, a year-on-year decrease of 850,000—the first negative growth in the national population since the start of the reform and opening up, which indicates that China’s population has peaked. In 2021, it was predicted that China’s total population would peak between 2025 and 2030. With a net increase of 480,000 people in that year, it was widely believed that the total population would maintain a certain level of growth. Surprisingly, the 2022 data showed negative population growth, the trend of population development having suddenly turned in a different direction.
Director Cai Fang’s research on the challenges and opportunities for China’s economic growth in the era of negative population growth leaves one with three impressions. First, his understanding of the problem is clear: the challenge lies in growth, the potential lies in the structure, and opportunities lie in the existing population. Second, his analysis of the problems is scientific and objective: negative population growth has a significant impact on both the supply side and the demand side. Third, his suggestions are focused and relevant; for example, reforming the household registration system and ensuring equal access to basic public services are both essential measures to take.
As will be discussed in the following sections, this article mainly makes three points on the topic of “The Challenges and Opportunities for China’s Economic Growth in the Era of Negative Population Growth.”
Population Changes Will Exert Various Influences on China’s Future Economic Growth
Generally speaking, three factors influence economic growth—labor, capital, and total factor productivity. In the short term, total factor productivity can be assumed to remain unchanged, and economic growth largely depends on the size of the labor force and the amount of capital input. Negative population growth, therefore, will have a direct impact on the economy.
First, the economy’s potential growth rate will show a more pronounced downward trend. The era of negative population growth will see a decline in the supply of labor. Data from the seventh national census reveals that in 2020, the working-age population—defined as those aged between 16 and 59—totaled 880 million, having shrunk by over 40 million since 2010. It has been estimated that from 2022 to 2035, China’s working-age population will dwindle by an average of 0.83 percent annually, which will lower the potential growth rate and which, in the actual workings of the economy, will lead to labor shortages and rising wage costs.
Second, economic growth will rely more on investment. In the short term, the economy will increasingly rely on the expansion of investment to maintain stable economic growth and counteract the effect of slowing—or even negative—labor growth. When capital input grows faster than labor input, the return on investment will decline. At the same time, negative population growth will also directly affect domestic demand, especially the expansion of consumer demand. A large population means high consumption, and once the total population drops, consumption will also decrease or grow more slowly, which will have implications for China’s advantage of an enormous domestic market.
Third, the task of economic restructuring becomes more urgent. Given the shrinking workforce and declining return on investment, China must rely primarily on raising total factor productivity instead to drive economic growth. To this end, it is important to improve the skill and caliber of the workforce and translate the country’s abundance of people into an abundance of human resources and human capital. As data from the seventh national census shows, in 2020, the average years of schooling for China’s population aged 15 and above was 9.91 years, an increase of 0.83 years from 2010. As the quality of the population improves, the demographic dividend is gradually turning into a talent dividend, which will allow China to make the most of its large population. At the same time, it is necessary to step up the implementation of an innovation-driven development strategy, strive for self-reliance in advanced technologies, strengthen basic research, and enhance the efficiency of technological investment. Currently, China’s total funding for research and experimental development ranks second in the world. The key from now on is to stimulate innovation and continue to open up new fronts and arenas of development.
Fourth, the impact of population aging is deepening. China is facing the challenges of “getting old before getting rich” and “aging without adequate preparation.” In 2021, the average GDP per capita of high-income countries was $47,887, while China’s was $12,500—only 26.1 percent of the former. An increasingly aging population will add to the burden on society. As the elderly population grows and the labor force shrinks, fewer people will have to support the care of more senior citizens, which means a higher dependency ratio, a heavier burden on society, and more pressure on public services and healthcare. As for “aging without adequate preparation,” China has yet to fully build a system of long-term care insurance for the elderly or a basic elderly care system, for example. Nor has it adequately developed health services for seniors; there are still many shortcomings to address and gaps to fill.
Fifth, there is increased pressure on the basic pension and medical insurance systems. Currently, in a few provincial-level administrative divisions, the basic pension funds have exhausted their accumulated surpluses or run growing annual deficits, and the expenditure of the medical insurance funds is growing faster than their revenue. The accelerating rise in the dependency ratio will undermine the sustainability of the basic pension and medical security systems. Given that China’s basic pension and medical insurance systems operate on a “pay-as-you-go” basis, where current social security contributions pay the current expenses of benefits, their sustainability deserves particular attention as the number of contributors becomes ever smaller and that of beneficiaries ever larger.
Apart from the impacts discussed above, negative population growth also has some positive effects. First, it means relatively less pressure on resources and the environment, and the quality of population quality will improve at a faster pace. Second, the per capita levels of economic and social development, such as GDP per capita, will rise faster. Third, the senior economy or silver economy will bring new development opportunities. Moreover, a negative growth of 850,000 people is small—almost negligible—relative to China’s vast population, though the trend of negative population growth needs to be taken seriously.
In summary, China’s current negative population growth will neither fundamentally change the overall positive trend of its economic and social development nor fundamentally alter the course of modernization with Chinese characteristics.
Study and Learn from the Valuable Experiences and Practices of Other Countries
Negative population growth and population aging are not unique to China. According to data from the 2022 World Population Prospects released by the United Nations’ Population Division, in 2021, 38 countries and areas experienced endogenous negative population growth. They are primarily located in Europe (25, such as Russia and Hungary), Asia (5, including Japan, South Korea, and Hong Kong), and North America (6, mostly island nations). Faced with negative population growth, countries around the world have adopted a variety of measures.
First, encouraging births. France and Singapore, for example, have sought to ease the conflict faced by women between work and family responsibilities with measures such as encouraging flexible working, extending paid maternity leave, introducing special paid childcare leave, and providing childcare allowances and free or low-cost childcare services. Sweden and South Korea have tried to reduce the costs of childbearing and child-rearing by offering allowances and subsidies, rent reductions, tax breaks, and university tuition waivers. Russia awards families with a large number of children the “Order of Parental Glory” or “Medal of Parental Glory,” along with material rewards. Italy decided to provide—from July 2021—a monthly allowance of up to 250 euros for each child from the seventh month of pregnancy until the age of 21. Singapore has in place a special savings account for parents to accumulate child-rearing funds; from 2021, the government contributes up to 9,000 Singapore dollars (about 46,000 RMB)—1.5 times the original amount—to the second child’s account.
Second, extending the retirement age. Germany has gradually increased the statutory retirement age from 65 to 67. Some countries link the age at which one retires with the amount of their pension benefits to encourage the elderly to remain in the labor force; in Germany, for instance, retiring between the ages of 63 and 64 will result in a 3.6 percent deduction for each year short of the statutory age, while late retirement will yield a higher pension accrual of 6 percent for each year worked after the statutory retirement age. In the United Kingdom, retiring between 65 and 70 leads to an annual increase of 7.5 percent to 10.4 percent in pension payments, with an increased one-time bonus, so as to encourage delayed retirement.
Third, attracting immigrants. Some countries have implemented policies to encourage immigration, targeting high-caliber, highly skilled migrants in particular. The United States, Canada, and Australia, for example, have leveraged their relatively advanced levels of economic and social development, attractive living conditions, and high income levels to selectively attract both young labor and high-quality talent from other countries by setting immigration thresholds. Canada is admitting immigrants at nearly twice the rate of its natural population change, welcoming about 250,000 immigrants annually.
Fourth, quicken the pace of industrial upgrading and technological advance. Japan, for example, has restructured its economy by transferring labor-intensive industries to other countries and focusing on enhancing research and development and industrial advantages, so as to adapt to negative population growth. It is stepping up the pace of automation in many industries, including the service sector, to reduce reliance on labor. Germany, too, is focusing on relocating medium- and low-end industries and reallocating resources to the development of high-end industries.
Fifth, developing elderly care services. Initially, in response to population aging, Western countries predominantly adopted institutional elderly care, like establishing retirement homes and nursing homes. Today, however, home care has become the primary mode of elderly care in developed Western countries, and countries like Japan are making great efforts to develop in-home elderly care services as well. In the United Kingdom, about 60 percent of all elderly care facilities are run by the private sector, and a large number of private companies provide adult day care in the community, which complements home care.
Sixth, improving old-age social security systems. Faced with a growing elderly population, developed countries are reforming their old-age security systems—improving pension distribution, various types of insurance, and healthcare and caregiving services—in a bid to meet the challenges posed by population aging.
Actively Tackle Negative Population Growth with Integrated Measures
It is inevitable that China will face negative population growth. It is necessary to learn broadly from other countries’ experiences, respond actively and appropriately, improve China’s population development strategy, and continuously promote high-quality economic and social development.
First, establish a policy system that supports births. Reducing the costs of childbearing, child-rearing, and education should be the aim and focus of this policy system, and supporting measures to encourage births should be improved and implemented. It is important to tackle the actual difficulties faced by women of childbearing age, such as employment and childcare. The government should explore measures such as paid maternity leave, family allowances, and tax breaks and aim to extend the scope of basic public services to include childcare services and preschool education. It should also promote the development of inclusive childcare services operated on a state-owned, privately-run or privately-owned, state-subsidized basis, so as to encourage social forces to establish inclusive childcare facilities and provide them with support and guidance.
Second, improve retirement policies. The 20th Party Congress report explicitly states that the statutory retirement age will be gradually raised. The Ministry of Human Resources and Social Security recently remarked that China’s current retirement age was generally low and that the ministry was working on a specific plan to delay the retirement age. When meeting the press on March 13, Prime Minister Li Qiang stated, “We will conduct careful studies and thorough analysis to roll out the policy of raising the retirement age prudently in due course.” In actual practice, it is particularly important to strictly regulate early retirement policies to prevent various forms of early retirement in disguise.
Third, step up the building of human capital advantages. We should thoroughly implement the initiative to strengthen education nationwide and optimize the distribution of educational resources. It is important to improve the average educational attainment of the working population and build an educated, skilled, and innovative workforce, so as to replace quantity with quality. Scholars differ on whether it is necessary to extend the period of compulsory education by three years at both ends. Additionally, it is necessary to improve the lifelong vocational training system, strengthen on-the-job continuing education for older workers, and encourage their return to the job market.
Fourth, step up the development of modern elderly care services. We should develop elderly care services and industries; expand the supply of inclusive elderly care; build an elderly care system that coordinates the roles played by homes, communities, and facilities and that integrates medical care and other personalized care services; strengthen senior healthcare services and management; and look into policies to foster the silver economy. It is important to improve policies that provide for senior citizens’ voluntary relocation of their household registration to where their children are registered and to safeguard their entitlement to local basic public services in accordance with laws and regulations.
Fifth, improve the old-age security system. We should improve the nationwide pooling of basic pension funds and develop a multilevel, multi-pillar pension system. It is important to expand social insurance coverage, improve the mechanisms for pension financing and benefit adjustment, and gradually narrow the gap in basic pension benefits between different systems and different groups. We should ensure the well-regulated development of the third pillar of the pension system and promote the development of private pensions.
Sixth, improve the medical insurance system. We should promote province-wide pooling of the funds of the basic medical insurance and employment injury insurance, improve the mechanisms for the basic medical insurance’s financing and benefit adjustment, and enhance the system’s sustainability. We should promote the organic integration of the medical aid system with the basic medical insurance system and serious illness insurance system, improve the serious illness insurance and medical aid systems, and increase the accuracy of serious illness insurance payments for elderly individuals in difficulty. We should further streamline on-the-spot settlement of medical expenses regardless of the locality, so that senior citizens can conveniently settle their inpatient and outpatient bills outside their registered place of residence. It is also necessary to actively encourage the development of commercial medical insurance.
Seventh, establish a long-term care insurance system. We should examine and promote what has been learned from the expanded pilot program for long-term care insurance, so as to set up a unified long-term care insurance system covering both urban and rural areas. We should fully establish an allowance system for financially strained senior citizens of an advanced age or with disabilities and ensure that it is well coordinated with the pilot program for long-term care insurance and with the care allowance for persons with severe disabilities. The development of commercial long-term care insurance should be encouraged in order to establish a multilevel, sustainable long-term care insurance system.
Eighth, utilize foreign human resources. It is necessary to improve immigration policies to attract high-level managerial talent in the elderly care industry, skilled professionals in shortage occupations, international students, entrepreneurs, and investors to immigrate to China. This is an important lesson from foreign experiences and an area that China needs to further explore.