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China’s Baby Crisis Threatens to Derail Economic Ambitions

China's Baby Crisis Threatens to Derail Economic Ambitions

Crystal, who preferred not to disclose her real name, is a 26-year-old resident of Beijing who, unlike most women of previous generations in China, remains unmarried and faces no immediate pressure to wed. She believes that this is due to her family background, as many of her relatives have never married or are divorced. This perspective is common among young women in Chinese cities, as a recent survey conducted by the Communist Youth League revealed that over 40% of urban women aged between 18 and 26 have no plans to marry, compared to less than 25% of men. Factors contributing to this trend include the rising costs of childcare and the lingering effects of China’s one-child policy, which has made having only one child or no children the norm.

The declining birth rate and aging population in China pose a significant problem for the country’s economy, as the workforce is already shrinking, and the demand for welfare services is increasing. China’s working-age population currently stands at around 875 million, or just over 60% of the country’s total population. However, this number is expected to decrease by 35 million over the next five years, according to a government estimate in 2021. Experts warn that if this trend continues, China’s workforce will eventually become unable to support the growing number of retirees, given that almost a fifth of China’s population is already over 60 years old.

Yi Fuxian, a senior scientist in obstetrics and gynecology at the University of Wisconsin-Madison, suggests that China’s demographic structure in 2018 was similar to that of Japan in 1992 and will be similar to Japan in 2020 by 2040. Many economists previously believed that China’s economic growth would surpass that of the US by the end of the decade. However, Mr. Yi predicts that China’s demographic and economic metrics will decline compared to the US by 2031-2035. The average age in China is currently 38, but as birth rates decline and the population continues to age, there are fears that China’s workforce will be unable to support those who have already retired. In Japan, almost one-third of the population is aged 65 or older, reflecting one of the world’s fastest-aging populations.

According to Louise Loo, a senior economist at Oxford Economics, the issue of population aging is not unique to China, but the strain it puts on the country’s pension system is particularly severe. Since 2014, the number of retirees has exceeded the number of contributors, resulting in a decrease in contributions to the pension fund. China’s pension fund is managed at a provincial level and functions on a pay-as-you-go basis, with contributions from the workforce being used to pay for retirees’ pensions.

In response to the weaknesses in the pension system, Beijing established a fund in 2018 to shift pension payments from richer provinces to those that face a deficit. However, a report by the Chinese Academy of Social Sciences in 2019 predicted that the country’s primary pension fund would be depleted by 2035 due to its shrinking workforce. China launched its first private pension scheme in 36 cities in 2022, allowing individuals to open retirement accounts at banks and purchase pension products like mutual funds. However, it remains uncertain whether many Chinese individuals, who typically invest in more traditional avenues such as property, will switch to private pension funds.

These issues are not unique to China, as Japan and South Korea also have aging populations and declining workforces. Beijing is expected to replicate Tokyo’s policies to reduce parenting costs, but China, which is aging before it becomes wealthy, lacks the financial resources to fully implement Japan’s approach, according to Mr. Yi. In addition, there is a growing online youth movement in China known as “lie flat,” which encourages workers to reject the pursuit of career success and promises freedom from the pressures of life and work in a fast-paced capitalist society. This is compounded by a high rate of youth unemployment, which peaked in July 2022, with 20% of those aged between 15 and 24 unemployed.

Mr. Yi stated that the labor force is like flour, and the pension system is like the skill of making bread. Even with the best bread-making skills, it is impossible to make enough bread without enough flour. This metaphor emphasizes the crucial role of the labor force in supporting the pension system and the need for a solution to address the challenges posed by population aging.

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