Doomsday predictions for the Chinese economy have become ten-a-penny.
Admittedly, many of these stem from legitimate concerns about excessive credit growth, overcapacity in key manufacturing sectors, and heavy-handed intervention in the equity and foreign exchange markets.
All of these are issues that Chinese policymakers will have to address to put long-term economic growth on a sustainable footing. To their credit, the Fifth Plenum of the Eighteenth Party Congress, held in October last year, saw some of the necessary reforms set in train.
One concern that may be in danger of being overblown, however, is China’s supposed demographic time bomb.
The Fifth Plenum officially brought the one-child policy to an end – although it had been relaxed over the preceding years. For many commentators this was a case of too little, too late; the demographic headwinds that China will face in the coming decades had already been determined.
China’s working-age population of one billion is set to shrink by around six million each year between now and 2050. China’s old-age dependency ratio, meanwhile, will increase from 13 per cent now to 34-44 per cent by 2050. Those levels would be comparable to current Italian and Japanese dependency ratios – and it’s fair to say that neither country is a bastion of economic growth.
So far, so worrying. But there are some important offsets to this demographic headwind.
The first is the potential for China’s still relatively low rate of urbanisation to increase, bringing workers from the countryside to the cities, where they are more productive. Some 55 per cent of China’s population live in urban areas, a dramatic increase from 36 per cent at the start of this century and 13 per cent in the middle of the previous century.
But imagine that China can get halfway from its current urbanisation rate to the 80-90 per cent rate in most advanced economies by 2050.
This would require reforms such as extending hukou (household registration and its associated benefits) to urban newcomers, and granting rural farmers property rights and, therefore, the ability to sell their land when they move to the cities. If successful, this would add an additional five to six million workers to urban areas each year, and go a long way to offsetting the projected decline in the working-age population.
The second is the rapidly rising rate of educational attainment in China. In 2000, just 6 per cent of Chinese 25-34 year olds had attained a secondary education; by 2010 that proportion had increased to 36 per cent. Meanwhile, the proportion of young people with a tertiary education more than doubled over the same period – with seven million Chinese people now graduating from university each year. Again, this represents a substantial offset to the overall shrinkage of the working-age population.
