Xi's China Dreams Will Not Age Well
On October 18, President Xi Jinping gave a speech to the Congress of the Communist Party of China, outlining policies on everything from the economy to the military. There was fanfare as Chinese media hailed Xi's plans to reduce pollution, fight inequality, and stand against corruption. Westerners noted Xi is now the most powerful ruler of China since Mao and raised eyebrows at the assertion of a “China solution” as an alternative to Western political and economic systems. Yet almost none of the media noticed that Xi provided no answers to China’s crushing demographic crisis in his speech.
In 1978, Beijing created the one child policy as China’s population neared 1 billion people. Worried that overpopulation would prevent economic growth and strain resources, Beijing made it illegal to have more than one child. Although there were some exceptions, for the vast majority of Chinese this system was harshly enforced by high fines, denial of public services, forced abortions and sterilizations, and infanticide.
Ultimately, the one child policy prevented close to 400 million births -- officially 336 million through abortion and an unknown number through the sterilization of 196 million women as well as other measures.
The policy hastened the fall of birth rates as China developed. A country needs a fertility rate of 2.1 to replace itself and China’s has fallen to 1.2 -- only 1.2 births on average per woman in their lifetime. Add to this a traditional preference for males as future breadwinners who then carry on the family line, and families often chose to abandon or abort any female baby. The result is a high sex ratio disparity, with 113 boys born for every 100 girls. Although this ratio has improved to 104 boys for every 100 girls, there are more than 33 million men without a potential partner, making it harder to improve birth rates.
Starting in the 1970s, China’s numerous young workers have fueled the country’s rise. Beijing reaped a demographic dividend of cheap labor which, combined with an opening to global trade and state-led investment in exports, helped 800 million work their way out of poverty.
The one child policy was meant to protect the economic engine from too many consumers, but it will end up starving that engine with too few workers. Realizing this, China allowed all families to have two children starting in 2015, but according to Beijing’s Cheung Kong Graduate School of Business, this adjustment is too little, too late. There are already too many young and middle-aged people today who will be the seniors of tomorrow.
For instance, the International Monetary Fund estimated that China’s working age population (those between 15 and 64 years old) peaked in 2011. In 2013, China had about 6.57 workers supporting every person 65 years of age or older. By 2050, it is projected that almost half of the entire population will be 65 years or older, meaning that there will be about 1.14 workers supporting every retiree.
A related problem is that China’s state-capitalist economy is still driven by top-down industrial and export goals. The Organisation for Economic Co-operation and Development estimates China’s economic growth will decline to 2.3 percent per year. China must liberalize to foster a consumer- and information-based economy and it must pursue automation. The alternative is decline as workers age and China bleeds factory jobs to cheap competitors with young populations such as India, Nigeria, and Kenya.
Additionally, life expectancy rose from 44 in 1960 to 76 in 2016, increasing burdens on sparse pensions and medical care. Millions of rural Chinese aren’t covered, lack private land rights, and live on as little as $1.90 a day. As many demographers have said, China is “getting old before getting rich.” In fact, combined public healthcare and pensions spending is projected to consume 8 percent of China’s GDP by 2050, with pensions alone facing a $12.6 trillion shortfall.
China must boost productivity, birth rates, and immigration. Low birth rates are notorious for being almost unchangeable, regardless of the money spent or the pro-natal policies enacted. For example, the only way the United States manages low birth rates is by accepting lots of young immigrants who have large families. China itself has experienced increasing immigration from abroad, but its legal structures remain unclear and restrictive.
Among the many reforms China needs are tax-incentivized private retirement accounts, robust safety nets, an end to population controls, a higher retirement age that adjusts for life expectancy, readily available work visas, improved private property rights, and an eventual end to state-owned enterprises in favor of a market economy.
Xi must act to maintain the demographic and economic engines that underpin China's rise. In his speech, he announced that China is almost a first-class power, returned to its rightful place as one of the centers, and perhaps even the center, of human civilization. But with no mention of the China’s aging or any policy shifts in sight, such triumphalism is premature.