China’s looming demographic crisis puts pressure on an already strained pension system
PAK YIU, GRACE LI, CK TAN and MITSURU OBE Nikkei staff writers:
THE COMING OF AGE
China’s looming demographic crisis puts pressure on an already strained pension system
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A 76-year-old villager from Nantong, Jiangsu province, China, tends her rapeseed farm. Her two sons left to live and work in Shanghai over 30 years ago
HONG KONG/NANTONG, China Located at the estuary of the Yangtze River and Yellow Sea, the Chinese city of Nantong has so many elderly residents that, at first glance, it looks like it could be a retirement community. Except that few of its residents turn out to be retired. The city’s working elderly guard factory gates, operate mom and pop stores, wash catering utensils, serve diners at local eateries, toil in rapeseed fields and fill other jobs. Nantong today is the oldest city in China, demographically speaking. Based on the 2020 National Population Census, people aged 60 and above accounted for 30% of Nantong’s 7.7 million population — almost double the national average of 18.7%. Known as the birthplace of China’s modern industrialization, where the country’s first textile plants were built in the 1890s, Nantong’s former glory began to fade in the 1990s as rapid urbanization in the nearby cities of Suzhou and Shanghai drew the locals away. Today, the city is aging rapidly. Nantong thus offers a window into China’s past but also a glimpse of China’s future: Its demographic profile resembles what, according to Chinese official projections, the country as a whole will look like by 2035 if present trends hold. Many of the schools have closed or merged, and pharmacies sell more diapers for adults than children. In Rudong, a county in Nantong, the trend is even more acute, with 39% of the population over 60. “Young people don’t like this type of hard labor,” said Wang Qiao while clearing a table at a diner in Rudong. Wang and her co-worker are both in their late 70s. “They prefer to work in major cities.” By 2035, an estimated 400 million people in China will be age 60 and over, representing 30% of the population, according to the government’s own projections. And the ratio of old to young is expected to rapidly grow more unbalanced after deaths outnumbered births last year, for the first time since 1961. In January, China’s National Bureau of Statistics confirmed what scholars and economists had expected — that China’s population declined in 2022, plummeting by 850,000 to 1.412 billion. The last time China’s population fell from year to year was in 1961, when Mao Zedong’s failed economic policies, known as the Great Leap Forward, killed millions, though that enforced lull in population growth proved to be temporary. Today, however, the downturn will be long-lasting and likely irreversible, many experts say, and was engineered by the one-child policy, a state-led effort to suppress fertility between 1980 and 2016. The effect on China’s economy will be far-reaching, judging by the experiences of other countries. ALARM BELLS RINGING With its population having fallen last year, China joined a club of major Asian economies navigating the same trend. Japan and South Korea are the world’s fastest-aging countries, with South Korea holding the world’s lowest fertility rate. Singapore, Thailand and Taiwan are also shrinking, while population growth is slowing in Vietnam, the Philippines and elsewhere. In the most fortunate countries, aging happens when the country is relatively prosperous — meaning many of its elderly are able to enjoy a comfortable retirement. Japan, for example, saw its median income hit First World levels well before the population began to plateau, a peak that corresponded with the end of its “bubble economy” in the late 1980s. “Japan got old after [being] rich,” said Lauren Johnston, associate professor of the China Studies Center at the University of Sydney. “And so you have this postwar generation, or classic baby boomers, who have lived cushy lives at each stage rela
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By 2035, an estimated 400 million people in China will be over the age of 60 Source: Chinese government projection
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“Having the population […] make more babies is not the way to go. But rather, it should be a consideration of the well-being and the welfare of the existing population” Yun Zhou, a China demographer at the University of Michigan
tive to their elders and juniors alike.” China, on the other hand, will have to confront the population issue in very different economic circumstances: Not yet a high-income country, its shrinking population could be a drag on economic growth as a massive population of retirees will claim an ever greater share of resources. Conventional wisdom predicts that China is headed for catastrophe as its workforce further shrinks, its pension coffers dry up and its health care system becomes more overburdened. Indeed, Chinese leaders are increasingly alarmed at the falling birthrate. China’s fertility rate slipped to below 1.1 in 2022. A rate of 2.1 is required to sustain a population. “A total fertility rate of 1.3 or lower is not what we want to see,” said Zhai Zhenwu, president of the China Population Association, supervised by the National Health Commission, in an interview with a Chinese-language newspaper last year. “We believe that if the fertility rate can be maintained at a level of 1.5-1.6, it will be more conducive to the development of our economy and society.” The Shanghai Academy of Social Sciences predicts that China’s population could be pushed down to 587 million in 2100, less than half of what it is today. That would mean for every 100 working-age Chinese, there would be 120 elderly people to support. However, the most curious aspect of the population bomb is that China dropped it on itself. The present shortage of children was preceded by three and a half decades of enforced birth suppression, the onechild policy that was launched in 1980 and ended in 2016. In tandem with economic reforms, the one-child policy intended to limit the size but enhance the “quality” of China’s population. “Controlling population growth in a planned way is conducive to the planned development of the national economy,” China’s then-Premier Hua Guofeng said in 1978, announcing the goal of bringing the country’s natural population growth rate down to less than 1% by 1981. China eventually reached that rate in 1998, after countless forced abortions and sterilizations. The one-child policy damaged many families, including reported cases of infanticide. And the real tragedy is that the onechild rule was probably unnecessary for curbing birthrates: Today, fertility rates in China are falling for the same reasons they are in most democracies around the world — as a side effect of economic growth, greater longevity, more civil freedoms and women having wider access to education. In 2016, the one-child policy was relaxed to allow two children. After the 2020 census rang alarm bells, it was further modified to allow three. But even so, most couples choose to have one child, and the population’s natural increase rate continues to fall. Couples are also putting off having that baby. The mean childbearing age in China has increased by nearly three years, rising to 28.8 in 2021 from 26.1 in 2000. Economic uncertainty is another factor in the falling birthrate: Fewer people are getting married due to the higher costs of raising a family and legal changes that make divorce more difficult. Fewer marriages translate to fewer births. Enduring traditional patriarchal family values stigmatize single mothers and illegitimate children, so having children out of wedlock remains rare. According to a 2016 survey by Peking University, among birthsby women born between 1980 and 1989, 1.2% were out of wedlock. The real proportion could be higher as births by unmarried mothers often go unregistered. China’s draconian COVID-19 policies have also played a role, prolonging uncertainty and slowing economic growth. A growing number of young people in China are rebelling against the unrelenting demands of parents, teachers and society by opting out. Underachievement — known as “lying flat,” or tang ping in youth jargon — has become trendy. Last year during the Shanghai lockdown in May, the phrase “the last generation” went viral, capturing a widespread mood of hopelessness and apathy that has contributed to the declining birthrate. AGING AHEAD OF SCHEDULE Until very recently, China’s demographers did not realize they had overshot the mark. In 2000, the top leadership announced a decision to adhere to the one-child policy, saying “overpopulation remains the No. 1 problem” in the country. “In the next few decades, under the premise of sustaining a low birthrate, our population will gradually transition from low growth to zerogrowth, and the total population will begin to slowly decline after reaching its peak (close to 1.6 billion),” the statement said. As recently as 2013, the one-child policy was publicly lauded for having achieved its stated goals. Mao Qunan, spokesman for the family planning commission at the time, said the policy had “effectively relieved population pressure on resources and the environment” and “promoted rapid economic progress and social progress.” Even in 2017, the State Council expected China’s population to peak in 2030 at 1.45 billion, according to a population planning document. All of the projections have proved to be wide of the mark, with the expected fall coming almost a decade earlier than projected. Meanwhile, the experiences of other aging countries in Asia suggest that, regardless of how bad the consequences are, there is little China can do about its graying population. Asia’s oldest population resides in Japan, where 29% of the people are 65 or older. The country has tried a variety of measures to halt its demographic decline, from encouraging paternity leave to offering cash payouts for couples who have children. The methods have been unsuccessful so far: Japan in 2021 hit a record low of 811,604 births. In February, Prime Minister Fumio Kishida announced Japan’s most ambitious raft of measures designed to raise the population, promising to provide more economic support for families and expand the nation’s child care system. But despite its neighbor’s panic, China appears unfazed. Many economists say
that while China’s situation is not good, it is not all bad either. “The Chinese have been monitoring this economic demography story all along,” said Johnston at the University of Sydney, adding the next generation will be much smaller. “China has fewer young people, but they’ll on average be a lot more prosperous and rich and educated [than previous generations].” COUNTERMEASURES Nonetheless, China is not ignoring the issue. Authorities have offered a slew of sweeteners, including cash rewards and a boost to paid marriage leave, to help couples tie the knot and have children. An article published last August in Qiushi, the Chinese Communist Party’s leading theoretical journal, underscored the severity of the dilemma and said tackling the decline would require “long-term and arduous efforts.” “The cash rewards are not even enough to buy milk powder,” said a mother surnamed Yang in Shenzhen. Yang has a 4-year-old daughter and is not planning to have more children. “Maybe the measures can incentivize some less well-off families, but for well-educated parents with a high standard of living, they wouldn’t just have babies for such little money.” Demographers are also skeptical. Fertility rates in Japan and South Korea have not
jumped despite similar incentivizes. “Having the population, either through implicitly coercive or explicitly coercive ways, make more babies is not the way to go,” said Yun Zhou, a China demographer at the University of Michigan. “But rather, it should be a consideration of the well-being and the welfare of the existing population.” China has hinted at raising the retirement age, which is among the lowest in the world at 60 for men, 55 for white-collar women and 50 for women who work in factories, but no official changes have been made yet. A restructuring of the executive State Council in mid-March, which moved the elderly care agenda to the Ministry of Civil Affairs, showed aging had become a national priority that needed to be treated as a welfare issue. On March 14, Jin Weigang, president of the Chinese Academy of Labor and Social Security Sciences, told Chinese state media the country is considering raising the age of retirement gradually, by a few months each year. LOST DECADES Judging by the experiences of other societies in the same boat, China’s population decline will be felt across its economic system. In Japan, for example, the issue has led to labor shortages, slower consumption, a hollowing-out of the manufacturingsector, greater fiscal deficits and lower interest rates. But the immediate concern is its impact on housing demand. Japan’s “lost decade” of flat economic growth and deflation started after the property market bubble burst in 1991, triggered in part by the onset of an aging population. Suddenly there was an oversupply of property in the face of diminishing demand. Experts point out a lag of only 15 to 20 years between Japan and China in terms of demographic maturation: The working-age population started falling in 2015 in China versus in 1995 in Japan; the population decline began in 2022 in China versus 2008 in Japan. At the time the population began moving toward decline, the median age of the Japanese population was 37, the same
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China’s population structure [now] is similar to Japan’s around 1990, when Japan entered a long-term decline”
median age as China’s population in 2020. “China’s population structure [now] is similar to Japan’s around 1990, when Japan entered a long-term decline,” points out Chi Hung Kwan, senior fellow at Nomura Institute of Capital Markets Research. China faces similar challenges to Japan, with fewer working-age people in the long term and a sharp increase in social security costs. The situation could be tough for a country without as well-developed a safety net as Japan’s, pointed out Randall Jones, a professional fellow at Columbia University’s Center on Japanese Economy and Business. “I would be less worried about the fiscal side, but more worried about elderly poverty; how they are going to cope with increasing poverty among the elderly,” he said. Many older Chinese retirees rely on state pension payments as a crucial sourceof income after years of working for low salaries. Workers like 59-year-old Mr. Gu, who hails from the eastern Shandong province, retire at 60, relatively young by international standards. The current pension system is managed by provincial governments but will need to be reformed, economists say. For Gu, retirement is around the corner. After nearly four decades of busing production workers to a local factory, he will soon be able to spend more time with his family and go for walks in the park with his grandchildren. But the quinquagenarian faces a concern many older people in rural areas share. He had hoped to save enough money from his allowance to put his grandchildren through school and to ensure a simple and smooth life for them. “On the one hand, I will have more time to take care of my two granddaughters,” Gu told Nikkei. “On the other hand, my pension is not much as a rural resident, so I would still like to find a new job if there is an opportunity.” In China’s fragmented pension system, poorer provincial governments receive cash transfers from richer regions. The pay-as-you-go system means the active workforce pays the pensions of those who retire. For Gu, the less than 3,000 yuan ($436) he receives every month from his state pension is enough to buy groceries and get by in a small county in Shandong. A tiny remainder, if any at all, is not enough for him to fulfill his dream of providing for his grandchildren. Born in 1963, Gu was among the record number of nearly 30 million newborns in China that year. Now he will join more than 10 million men across the country who are set to retire this year — China’s largest one-year total. Urbanization and the torrent of migrant workers flowing into large cities looking for job opportunities have also meant rural governments have fewer people paying into their local pension programs. The Chinese Academy of Social Sciences warned in a report in 2019 that the country’s pension funds will go completely dry by 2035, underscoring the urgency of the matter. The precarious nature of this issue “I would be less worried about the fiscal side, but more worried about elderly poverty” Randall Jones, a professional fellow at Columbia University’s Center on Japanese Economy and Business general at the Bank of Japan’s international department. For years, China has capitalized on cheap labor to become an economic powerhouse and the world’s factory floor. That will have to change. As happened in Japan, manufacturers could slowly start exiting the country, resulting in a vicious cycle of falling domestic demand and less domestic investment. In turn, fewer jobs and a further drop in private consumption and business investment could follow. “[Population change] will have implications from a company perspective, and those decisions by the companies will also shape China’s future growth and economic status and also China’s role in the whole global supply chain as well,” Yue Su, principal China economist at the Economist Intelligence Unit, said. With India primed to take over the top position as the world’s most populous country this year, China is expected to reshape its economy. Manufacturers are already looking in places outside China like Vietnam, Bangladesh and India for cheaper labor. The country will have to shift from low-value manufacturing and move up the value chain toward more skilled workers. Investing in areas such as science and technology could boost growth opportunities. “China has to work out a way to enable quality labor to realize its potential,” the University of Sydney’s Johnston said, “which is tricky. It’s different to setting up a factory and sending peasants into the factory. To allow educated people to flourish is more risky.” Back in Rudong, Li Guojun, a middleaged auto mechanic, waits outside the gate of Chahe Middle Secondary School to pick up his daughter, who has just started her first year. At its peak 15 years ago, the school catered to over 3,000 students. After merging with several schools in Rudong as population growth waned, it now has about 1,000 students. “The Chinese tradition of yang’er fanglao (raising children so they can look after you when you get old) is broken,” Li said. Li and his wife are supporting four parents, but he doubts whether his daughter will be able to do the same. “Everything is competitive,” Li explained, “from education to careers. Whether she can make it and go on to find a spouse remains to be seen. “By looking at the current trend where young people stay away from marriage, I don’t have any expectations.”
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“I would be less worried about the fiscal side, but more worried about elderly poverty” Randall Jones, a professional fellow at Columbia University’s Center on Japanese Economy and Business