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  • Writer's pictureThe San Juan Daily Star

Why China’s shrinking population is a problem for everyone

A class for boys and girls at a government run school in Nima, India on May 8, 2022. India has a young, vast work force that is expanding as China’s ages and shrinks.

By Nicole Hong

Despite the cancellation years ago of China’s harsh, Mao-era restriction on families to a single child, and even after more recent incentives urging families to have more children, China’s population is steadily shrinking — a momentous shift that will soon leave India as the world’s most populous nation and have broad rippling effects both domestically and globally.

The change puts China on the same course of both aging and shrinking as many of its neighbors in Asia, but its path will have outsize effects not just on the regional economy, but on the world at large as well.

Here’s why economists and others are alarmed by the developments.

China’s shrinking workforce could hobble the global economy.

For years, China’s massive working-age population powered the global economic engine, supplying the factory workers whose cheap labor produced goods that were exported around the world.

In the long run, a shortage of factory workers in China — driven by a better-educated workforce and a shrinking population of young people — could raise costs for consumers outside China, potentially exacerbating inflation in countries such as the United States that rely heavily on imported Chinese products. Facing rising labor costs in China, many companies have already begun shifting their manufacturing operations to lower-paying countries like Vietnam and Mexico.

A shrinking population could also mean a decline in spending by Chinese consumers, threatening global brands dependent on sales of products to China, from Apple smartphones to Nike sneakers.

The data is bad news for China’s crucial housing market.

In the short term, a plunging birthrate poses a major threat to China’s real estate sector, which accounts for roughly one-quarter of the country’s economic output. Population growth is a key driver of housing demand, and homeownership is the most important asset for many Chinese people. During widespread pandemic lockdowns that dampened consumer spending and export growth, China’s economy became even more dependent on the ailing housing sector.

The government recently intervened to help distressed real estate developers, in an attempt to stem the fallout from its housing crisis.

China’s shrinking workforce may not be able to support its growing, aging population.

With fewer working-age people in the long run, the government could struggle to sustain an enormous population that is growing older and living longer. A 2019 report by the Chinese Academy of Social Sciences predicted that the country’s main pension fund would run out of money by 2035, in part because of the shrinking workforce.

Economists have compared China’s demographic crisis to the one that stalled Japan’s economic boom in the 1990s.

But China does not have the same resources as a country like Japan to provide a safety net for its aging population. Its households live on much lower incomes on average than in the U.S. and elsewhere. Many older Chinese residents rely on state pension payments as a key source of income during retirement.

China also has some of the lowest retirement ages in the world, with most workers retiring by 60. The situation has put a tremendous strain not only on state pension funds, but also on the country’s hospital system.

The crisis has been decades in the making.

China introduced the one-child policy in the late 1970s, arguing that it was necessary to keep population growth from reaching unsustainable levels. The government imposed onerous fines on most couples who had more than one child, and compelled hundreds of millions of Chinese women to have abortions. Many families favored boys over girls, often aborting baby girls or abandoning them at birth, resulting in a huge surplus of single men in the Chinese population.

China announced the relaxing of the family size restrictions in 2013, but many demographic experts said the change had come too late to alter the country’s population trajectory.

There are no easy fixes.

The government’s efforts to start a baby boom to solve the demographic crisis — including offering cash handouts and easing the one-child policy to allow for three — have failed to stabilize falling birthrates. Educated Chinese women are increasingly delaying marriage and choosing not to have children, deterred by the high costs of housing and education.

China has also been unwilling to loosen immigration rules to boost the population, and has historically issued relatively few green cards to replenish its shrinking workforce.

To address the labor shortage, China has been outsourcing low-skilled production to other countries in Asia, and adding more automation to its factories, hoping to rely more on artificial intelligence and technology sectors for future growth.

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