In focus - Economic Views

Does it matter if China gets old before it gets rich?



Craig Botham

Craig Botham

Senior Emerging Markets Economist



China’s working age population has peaked

As the chart below highlights, the peak in China’s working age population has come and gone, and from here the workforce will shrink in absolute terms, and as a share of the total population, which will itself decline from 2027, according US Census Bureau projections 2019.

China's ageing population


A look at the median age over time reveals how rapidly China has aged, and will continue to age. On this measure, China will become older than the US in 2021, and will be as old as Japan is today by 2045. Whether this means China grows old before it grows rich is subjective, in that it depends on your definition for both old and rich.

Chinese trend growth: the Solow perspective

We conclude that an ageing workforce, on its own, does not necessarily mean China can never become rich. Provided labour productivity is high enough, growth can be maintained in the face of a declining pool of labour.


Policy implications

Apparent from our analysis is the fact that China has managed to grow, and can continue to grow, at a robust pace independently of the evolution in the size of its labour force. The ageing of the workforce will take time to become a noticeable drag and can be partially offset by labour market reforms aimed at boosting participation rates amongst older workers. Far more important for the Chinese growth story is the productivity of the workforce, not its size.

Reforms to support total factor productivity are of key importance. Made in China 2025 is an explicit attempt to move up the value chain of production, in doing so greatly boosting the productivity of both capital and labour. However, other measures such as land reform may be contentious, given the fundamental clash between Communist Party ideology and the concept of private land ownership.

Given the right policy mix, China’s demographic decline is less of a problem than it appears. The challenge will be achieving that policy mix under a leadership that sees part of the solution as politically unpalatable.
