Why is the decline in China’s population, the first in sixty years, not good for its economy?

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YEREVAN (CoinChapter.com) — China’s population has shrunk drastically in 2022 for the first time in the last 60 years. The latest official data coming from China, the most populous nation in the world, suggests that the country is headed for a demographic crisis. However, the decline in China’s population is not good for its economy. 

According to the National Bureau of Statistics of China, the Asian giant’s population declined by 850,000. More specifically, it fell from 1.412 billion at the end of 2021 to 1.411 billion by the end of 2022.  

As Bloomberg reported, China recorded only 9.56 million births in the year. For the first time since 1950, its birth rate has fallen to a record low of 6.77 births per 1,000 people. In 2019, that number was 10.41 births per 1,000. 

“That’s mainly a result of drop in people’s willingness to have babies, the delay in marriage and pregnancy, as well as a fall in number of women of child-bearing age,”  

Kang Yi, head of the National Statistics Bureau said. 

The steep decline is extraordinary. In the past four decades, China’s population grew immensely, jumping from 660 million to 1.4 billion. Those were extraordinary days for the country as it had just come out of the great famine of 1959-1961.

But now, the steep decline of China’s population poses a massive economic threat to Beijing. The fall, which has come faster than experts predicted, could pull the breaks on the country’s economic progress.

As a result, rival India could also overtake China to become the most populated country earlier than previously expected. 

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The impact of population decline on the Chinese economy

Not least of China’s worries is the declining working population. As per records issued by the National Statistics Bureau, only 62% of the population is of working-age, (16 to 59 in China). This is a serious cause of worry for Beijing, as this number was around 70% a decade ago. The Chinese workforce is aging.

According to studies by the Centre of Policy Studies at Victoria University, pension payments in China will jump from 4% of GDP in 2020 to 20% of GDP in 2100.

This, combined with the fact that birth rates have plunged to record lows, will have massive economic implications that China has to bear. The Government will have to divert a large chunk of the already limited public finances to caring for the elderly.

As per experts, China’s elderly population, (aged 65 and above), will surpass the working-age population by 2080 or earlier. 

Moreover, the decline in the overall population will put a huge dent in the domestic demand for goods and services. Faced with competition from other emerging economies, China’s share of global exports also stands threatened. 

The decline in the workforce will also impact labor costs. As a result, many manufacturers will shift their facilities to other labor-abundant countries. In this regard, regional rivals like India, Bangladesh, and Vietnam have the potential to cripple China’s famed ‘cheap labor’ industry. 

As CoinChapter earlier reported, several Western countries, led by the United States, have already cut down imports from China. With the export market shrinking and local demand falling, businesses will have a tough time coping with losses.