From plenty to scarcity – Chinadaily.com.cn
China’s demographic trends mean people are less likely to consume
According to the eagerly awaited results of the Seventh National Census, China’s total population in 2020 was 1.41 billion, an increase of 72.05 million since the Sixth National Census in 2010.
This represents an average annual growth rate of 0.53%, which, while in line with expectations, indicates slower population growth over the past decade, compared to the previous one.
Notably, after nearly 30 years when the fertility rate, or the number of births per woman, was below the replacement level of 2.1 -, the total fertility rate has now fallen to 1.3, which means that the aging of the population is irreversible and that the continued disappearance of the demographic dividend is inevitable.
As an ancient Chinese classic, The Book of Rites, puts it, that producers are many and consumers few, “more producers than consumers” is a fairly accurate explanation of the demographic dividend. Demographers generally group a population into three categories: the young population under the age of 14, the working-age population aged 15 to 59, and those aged 60 and over. The middle population group is characterized as being more productive than consumer, while groups on either end are more consumers than productive.
From 1980 to 2010, the working-age population grew faster than the populations of young and old, resulting in a low and steadily declining dependency rate (ratio of combined populations of young and old older than the working-age population). This is a typical scenario where there are more producers than consumers.
The unique age structure of the population during this period contributed to strong economic growth as there was a sufficient supply of labor in quantity and quality, high savings rates and returns on investment. favorable conditions, and increased productivity through labor reallocation. Thanks to the demographic dividend, aggregate demand consisting of exports, investment and consumption has also been strong and has helped unleash the growth potential of the economy.
The peak in the working-age population in 2010 led to a tipping point in economic growth, resulting in a labor shortage, slower improvement in human capital, lower returns on capital investments, a slowdown in productivity growth and, consequently, a decline in growth potential. From 2011 to 2019, official statistics show that the real growth rate of the Chinese economy increased from 10.4% to 6.0%. This decline not only confirms the decrease in the demographic dividend, but also indicates the close coordination between supply and demand during this period.
The population is expected to peak around 2025, which will trigger another tipping point by imposing adverse effects on China’s economic growth on the demand side. Not only will the further weakening of the comparative advantage of the manufacturing sector tend to reduce exports and investment, but an aging population will have less ability and propensity to consume.
Considering the purpose of economic development, the existing potential, the balance of the three major demands and the maintenance of the sustainability of the demands important for economic growth, there are good reasons to promote resident consumption on a priority basis. , responding to demand. secondary challenges of an aging population. With a population growth rate close to zero and an additional aging of the population, three effects will influence the consumption demand of Chinese families.
The first is the trend of population growth. Consumption slows down as population growth slows and consumption faces increasing difficulties as population decreases.
Here we can reasonably modify what we quoted in The Book of Rites to highlight the challenges imposed by the demographic dividend disappearance. In other words, China’s demographics will shift from a sufficient supply of labor, or an abundance of producers, to inadequate demand or a shortage of consumers.
The second effect is the age structure of the population. The aging trend tends to reduce household spending in two ways. The low level of payment and imperfect coverage of the pension system tend to reduce the ability and propensity of older people to consume. As aging worsens, employees not only have to contribute heavily to social insurance programs, but also tend to save more as a precaution.
A third effect concerns the distribution of income. Due to the aging of the population, economic growth slows down, labor market participation tends to decline and the income of residents increases at a slower rate, making it more difficult to improve the distribution of income. Since the law of economics assumes that low-income households have a higher marginal propensity to consume than high-income households, persistent income inequality is very likely to reduce aggregate consumption.
In order to cope with the effects of stagnant population growth, the following aspects are decisive. The first is to make related policies more inclusive and to reduce the cost of childbirth, childcare and education. The second is to improve the employability of older workers, increase participation in the labor market and be fully covered by social insurance programs. The third is to reduce income gaps and expand the size and proportion of the middle income group.
The author is the chief expert of the National High-end Think Tank of the Chinese Academy of Social Sciences.