Aging Population Could Trim 3% Off China GDP Growth

October 23, 2013, 2:25 PM

Aging Population Could Trim 3% Off China GDP Growth

China’s one-child policy has hastened such a big slowdown in China’s working-age population that the country’s demographic future is starting to look a lot more like that of rich nations—and that’s bad news for China. According to two Citigroup economists, Nathan Sheets and Robert A. Sockin, China’s “deteriorating demographics” are likely to trim 3.25 percentage points off China’s annual growth rate between 2012 and 2030, compared to its double-digit growth of past decades. While industrialized nations face similar demographic challenges, they have a deeper cushion of wealth to rely upon (witness Japan.) China needs to continue to grow rapidly if it’s ever to reach the fat-and-happy stage.“The potential difficulties as Chinese policymakers seek to pilot their economy through this demographic transition represents an under-appreciated global risk,” the two economists write in a recent report.

For the past 20 years, China’s working age population has risen, which has helped boost productivity and incomes, as many young people left the rural areas, where they worked with basic tools, and signed up for factory work on China’s southern and eastern coast. That was the economic-plus of the one-child policy. “The share of the young was diminished and, being a developing country, the number of people over 65 years old was low as well ,” the economists write. As a result, those of working age had fewer responsibilities to care for little kids or aged parents.

Now, that’s reversing. The share of the working-age population (ages 15-64) will decline in China between 2010 and 2030 nearly as fast as it will in Japan, the U.S. and other wealthy nations. Switching to a two-child policy could even make things worse over the next 20 year, because more births would mean that working parents would have more dependents to care for, the economists note.

Overall, Messrs. Sheets and Sockin estimate that China’s growth ceiling over the coming two decades is 6.9% annually, “and to the extent that urbanization, industrialization and convergence dynamics play through (as is likely) actual growth will be substantially lower.”

Of course, there are measures China could take to ease the problem, the economists say: Have people work longer and use more automation.

Immigration could possibly help, though that’s a solution usually proposed for rich nations. And where might migrants come from? Africa’s  population is still growing sharply.

“We see Africa’s voice in global deliberations as likely to be increasingly important,” the Citigroup economists write. “We also expect that Africa will account of a rising share of global immigration flows.”