China's workforce population at a turning point

According to the latest census, China has a population of around 1.34 billion people, though population growth has nearly halved in the past decade compared to the decade before. Furthermore, population aging increased further not least due to the fact that according to estimates some 400 million fewer children were born as a result of the one-child policy introduced in 1978. The effects of these developments will start to be felt on the Chinese labor market as early as this decade.

"Even if the one-child policy were relaxed or lifted, the decline in the workforce potential could be alleviated but no longer prevented," says Professor Michael Heise, Chief Economist and Head of Corporate Development at Allianz. The turning point for China's labor market will be reached in 2013, according to findings from the recent Allianz Demographic Pulse. Further wage increases only seem to be a question of time, while Chinese companies have already begun to relocate their labor-intensive production operations to the interior of the country or even to Vietnam, Bangladesh or Cambodia in reaction to rising labor costs in the coastal regions.

Graph: Development of fertility rates in China  

With working age population shrinking on the one hand, and life expectancy increasing on the other, the aging process gains momentum. Today there are 19 people aged 60 and older per 100 people of employable age, by 2050 that ratio is expected to reach 64 to 100. Against this backdrop critics are calling for the one-child policy to be relaxed or lifted. However, since birth rates are falling nearly everywhere in the world, the question arises as to whether the one-child policy alone is to blame for the decline in China's birth rate or whether economic trends are also responsible.

For example, since the collapse of the Soviet Union and the introduction of economic reforms in the 1990s, birth rates in eastern European countries have also fallen significantly. In countries such as Thailand, Turkey and Tunisia, where the gross domestic product per capita is approximately on par with China's, birth rates have now fallen below the reproduction rate of 2.1 children per woman needed to maintain a constant population. In Germany too the birth rate has been on the decline since 1997 after it had recovered from its all-time low of 1.24 children in 1994 and is now estimated to range between 1.33 and 1.38 children per woman. Birth rates are therefore only half of what they were in the 1960s and far from the level required to halt the population decline in the long term.

Regulations in Chinese provinces that aim to dampen the population aging process by relaxing the one-child policy are therefore likely to come up against the same problems as family policymakers in Germany, Austria or Italy, where birth rates have remained stuck at a low level. Financial incentives – in China a reduction in fines for infringing the one-child policy or in Germany for example increasing child benefits – are unlikely to be sufficient to reverse the trend. "It is therefore all the more important to establish a demographically sustainable social system as a matter of urgency in which capital-funded private provisions play a key role," says Heise. "In China this could include increasing the retirement age to 65 years, thus delaying the demographic turning point by another three years and significantly lowering the age ratio in the long term. In the European Union, despite a retirement age of 65, the turning point will be reached as early as 2012."

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