Fertility rates in OECD countries have halved since 1960, according to a new OECD report.
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China’s population is shrinking, and demographic changes will ultimately harm its economy, reduce its workforce and put pressure on fiscal policy.
“(China’s) working-age population will decline rapidly over the next decade, and the Chinese economy will need to contend with a 1% annual drag on GDP growth over the next decade,” said Darren Tay, head of country risk for Asia.Country Risk & Industry Analysis told Squawk Box Asia in June, referring to estimates gathered through the assessment world population data Released by the United Nations.
“The financial pressures of aging are imminent and concerning,” The Economist Intelligence Unit warns.
“Economic growth depends on productivity, capital accumulation and labor input. The negative impact of unfavorable demographics will be felt mainly through a shrinking labor force,” the report released in January said.
The Economist Intelligence Unit said raising the retirement age is “one of the few viable options” to maintain long-term fiscal balance.
“Our calculations show that if the retirement age is raised to 65 by 2035, the pension budget gap can be reduced by 20% and the net pension received can be increased by 30%, which means that the burden on the government and families will be reduced.” The report .
Birth rates are falling around the world as women choose to delay having children or not have children at all.
Fertility rates in OECD countries – some of the world’s richest countries – have halved, from about 3.3 children per woman in 1960 to about 1.5 children per woman in 2022. OECD, Organization for Economic Cooperation and Development.
“This is well below the ‘replacement level’ of 2.1 children per woman required to keep the population stable in the absence of immigration,” the June report said.
China’s population is shrinking
According to data from the National Bureau of Statistics, China’s population will be 1.409 billion in 2023, decreasing for the second consecutive year and 2.08 million less than the previous year. National Bureau of Statistics of China.
This is better than The population will decrease by approximately 850,000 in 2022 –The country has seen more deaths than births in its first year since the Great Famine of the early 1960s.
“This is a result of the one-child policy that was instituted in the 1980s,” Erica Tay, head of macro research at Maybank, told CNBC.
China’s population is expected to decrease will reach 1.317 billion by 2050, and dropped by nearly half — will reach 732 million by 2100.
Xu Tianchen, senior economist at the Economist Intelligence Unit (EIU), told CNBC that China’s fertility rate is declining faster than its regional counterparts such as South Korea and Japan.
He said these three countries are particularly affected by the rapid aging of their populations, mainly due to rising living standards, which “show a very strong negative correlation with fertility rates”.
China, in particular, “has been growing at a very high rate in the past thirty years.” Its economic expansion has been “rapid and sustained,” he added.
China’s welfare system also “lags behind” and financial support for childbirth is “quite low compared to international comparisons,” Xu said.
Soaring home prices don’t help.
“The government is basically ill-equipped to deal with the sharp rise in housing costs,” Xu said, noting that as housing costs get higher, people may find it difficult to buy a home and delay starting a family.
birth rate decreases
Rapid economic expansion in developed countries in recent decades has led to rising income levels and expanded educational and professional opportunities for women.
These improvements in conditions lead to a greater opportunity cost of having children, Xu said.
“In more developed societies, the trend is that the cost of raising children is much higher for parents, which tends to be a disincentive to having children,” said BMI’s Tay.
“The more developed an economy is, the more skills the participants in the economy have to possess, and therefore the investment required per (child) increases accordingly,” she said.
Asian work culture also plays a role.
“In Asian countries, the concept of working long hours is deeply ingrained,” Xu said. “This is especially a problem in China, South Korea…(and) other parts of East and Southeast Asia.”
“These countries have some of the longest total working hours in the world,” Xu told CNBC, so workers have less time to start families.
shrinking labor force
Declining fertility rates put pressure on the economy and society as a whole as the working population shrinks.
“In about two decades, a country’s birth rate will translate into growth in its working-age population,” Maybank’s Tai said.
Additionally, falling fertility rates may affect the proportion of older people who need support from younger generations, which could “put an undue burden on a country’s healthcare and pension systems,” Maybank’s Tai told CNBC.
Eventually, the burden will increase on the younger generation as they not only have to care for their own children but also their aging parents.
Demographic changes in parts of Asia are a structural problem that require “resolute and comprehensive efforts” by governments on fiscal and monetary policy, she said.
China’s policy changes
Xu told CNBC that in China, policymakers have always attached great importance to “productivity growth.”
“They have seen a significant decline in labor’s contribution to GDP that cannot be alleviated in the short term by any form of policy intervention,” he said. “That’s why they’ve been focused on productivity growth.”
China has invested heavily in shifting to digital solutions and developing technologies such as automation and advanced chips, with the goal of making traditional industries more efficient and improving productivity across the board, Xu said.
Going forward, Chinese policymakers are encouraged to take more steps on the labor environment. “This may require stricter enforcement of labor laws and promotion of work-life balance,” Xu said.
Economists also believe that Chinese policymakers should also work to raise the country’s retirement age, implement more aggressive tax rebates for expenses related to raising children, and step up efforts to build affordable housing in the country.
Although China’s economic growth is expected to slow due to demographic issues, China’s GDP has grown by an average of 9% per year since 1978, according to the National Bureau of Statistics. World Bank.
“The fact remains that no matter how you think about it, even growth of about 3% is not going to be a disaster for the Chinese economy,” BMI’s Tay told CNBC.
“If they continue to grow at this rate, which is likely to be more sustainable, the real income of the average Chinese citizen will increase by 13% by 2033,” he added. “So living standards will still continue to improve.”
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