Will China Be Rich Before It Grows Old?

A typical morning exercise for senior citizens..

It is common knowledge that China, with its 1.3 billion people, is the most populous country on the face of the earth. Fewer people, however, know that the number of senior citizens in China also ranks first in the world. An internationally accepted definition of an aging society is one where more than 10 percent of the population is aged over 60, or 7 percent of the population is over 65. By 2004, China had exceeded both criteria.

According to statistics provided by the China Association for the Aged, by 2020, the number of senior citizens in China will increase to 11.8 percent of the population, with a peak in the graying population arriving at around 2030. That peak is expected to last about 2 decades. By the middle of the 21st century, China’s population will include more than 400 million people over 60, and some 300 million over 65 years of age.

Developed countries all over the world met the challenges brought about by a large aging population. However, when their societies “turned gray,” the average per capita GDP was US $4,000, and in many cases, it was more than US $10,000. The corresponding figure for China is significantly lower, standing at US $1,000. Another noteworthy point is that it took Chinese society just 18 years to change from an adult society to an aging one, while in France, it took 115 years; in Switzerland, 85 years; in the United States, 60 years; and in Britain, 45 years. Consequently, two pressing questions arise. First, can China resolve the incongruity between its aging population and economic development before the aging population peaks in 2030? Second, can China become wealthy enough to cover its social security bills for its many millions of senior citizens before that date?

Demographic Bonus Period

Chinese scholars have kept a close eye on Japan’s experience in managing the relationship between an aging population and economic development – particularly in the last ten years when the country’s economy slumped into recession. Professor Qiao Xiaochun of the Demographic Institute of Renmin University believes that a major factor behind Japan’s decade of economic stagnation is its diluted labor force and the heavy burden of its aging population, brought about by a low fertility rate. In the coming decade, China will face a similar problem.

Yu Xuejun, director of the Policy and Legislation Department of the State Population and Family Planning Commission, says that their main task is to study China’s population situation and provide suggestions as to the formulation of population strategy. He says China’s labor force has now entered a ten-year peak period. “People born in the third baby boom have now reached working age. In the coming years China will enter a golden period of the richest supply of labor and the lightest burden of population dependency, which provides a beneficial population environment for rapid economic development.” Yu Xuejun adds that in around 2015 China’s labor force will reach a peak of 930 million, and after which the figure will gradually decline.

Migrant workers waiting on the street for employment.

“When the labor force peaks, it will be the period of the heaviest pressure on employment, but it will also be a demographic bonus period,” says Yu Xuejun. In the 40 years between 1990 and 2030, before China’s aging society peaks, the country will form a population structure that with relatively low proportions of minors and senior citizens will facilitate economic development. Such a population structure has an ample labor force, and relatively light social burdens. It is, therefore, conducive to social and economic development. If enough jobs can be created in this period, China’s sustained, rapid economic growth is a certainty.

Preparations for an Aging Society

While studying the relationship between Japan’s economic depression and its aging population, Professor Qiao Xiaochun also researched Japan’s pension system. He believes that as a developing country China should create a pension system that is capable of dealing with the strain an aging society will inevitably puts on resources.

According to Professor Qiao, the pension system has become a prominent social problem in Japan. Before 2004, the proportion of the pension fund allocated by the Japanese government made up one third of the total. Since then, this proportion has increased to one half of the total pension fund. This translates into a massive sum of money. Since the size of the labor force is in decline, the government has had to raise tax rates. However, this has had little impact on solving the pension problem for the growing gray population. Both the young and the elderly are dissatisfied.

Professor Qiao points to the “pay-as-you-go” pension system, now commonplace in Japan and most of Europe, whereby those currently in employment pay for those currently in retirement. In order to ease the burden on young people and future government, in 1995, the Chinese government began to change the “pay-as-you-go” pension system to a “partially funded scheme.” Pension funds are no longer provided solely by the state, and employees start to make contributions to their pension upon joining the labor force.

According to Li Peilin, vice-president of the Institute of Sociology of the Chinese Academy of Social Sciences, by the end of September 2004, 160.62 million people had basic pension insurance, and 119.41 million people had health insurance. However, taking into account China’s population of 1.3 billion, these figures are not very high. Experts point out that in China, family support of the elderly still plays a major role, particularly in the countryside, where some 900 million people live.

Meanwhile, following the increase in the number of senior citizens, more and more service companies for the elderly are coming into being. The Chinese government has revised the Design Code for Buildings for Elderly People and the Design Code for Barrier-free Urban Roads and Buildings, in an attempt to provide the elderly with more convenience and a better living standard. Community clinics, homes for the aged, activity centers for the aged and schools for the aged have mushroomed throughout the country.

Meet the Challenge

On April 19, 2004, the Prumerica Financial and the Center for Strategic and International Studies (CSIS) of the United States issued a joint report titled: The Graying of the Middle Kingdom – The Demographics and Economics of Retirement Policy in China. It points out, “By 2040, assuming current demographic trends continue, there will be 397 million Chinese elders, which is more than the total current population of France, Germany, Italy, Japan, and the United Kingdom combined. How China meets its aging challenge will determine whether or not it becomes a prosperous and stable developed country.”

The report affirms the achievements in pension and health insurance made by China’s state-owned enterprises and government organizations, but expresses worries about the current state of pension and health insurance in private enterprises. In fact, in the late 1990s the State Council began to include private enterprises into the coverage of pension funds. Problems raised in the report will gradually be resolved.

John Hamre, president and CEO of CSIS, pointed out, “The age wave may pose an enormous challenge, but it need not cut short China’s astonishing rags to riches story – provided that China makes the correct policy choices today. If China fails to confront the aging challenge, it will face a future of diminished economic prospects and limited influence in world affairs. If China rises to the occasion, its horizons are limitless.”