Getting Rich Before Getting Old or Vice Versa?


REGARDING China’s economic and social outlook, there are two contending views in the domestic and overseas academic world. One predicts that China will get affluent before becoming an aging society, and the other holds the opposite opinion. A comprehensive and dynamic analysis is needed before reaching a conclusion.

Complex Factors in Economic Growth

Total Factor Productivity (TFP) is the most accepted measurement through which to judge total inputs’ output productivity, that is, the ratio of total output to total inputs. TFP includes technological progress, organizational innovation, professionalism, etc. An increase of this index reflects the progress of science and technology. High TFP rates and high contributions to the economy indicate that China’s socio-economic development mainly relies on technological advances rather than other factors.

Zhu Xiaodong, professor at the University of Toronto, released “Understanding China’s Growth: Past, Present, and Future” (Journal of Economic Perspectives, 2012). His research shows that from 1952 to 1978, China’s annual TFP growth was -1.07 percent, and 3.16 percent between 1978 and 2007, and that the TFP’s contribution to GDP Per Capita was -72.03 percent from 1952 to 1978 and 77.89 percent from 1978 to 2007. These statistics reveal that China’s TFP growth has been the main source of its economic growth since opening-up and reform, and suggest that China will become affluent before getting old.

But there are some assumptions when calculating TFP. For example, the production function is assumed to have constant elasticity of substitution. So this analysis ignores some important factors in economic development, such as the effects of scale, and the composite effect between economic factors. Human beings are the most vital factor in economic activities; they not only integrate labor, land, raw materials, capital goods, fund, technology, etc., but also make optimal configurations to maximize productivity. Different combinations lead to different efficiency. In order to track the source of economic development and economic growth, labor, labor costs and human resources should not be mixed up.

The Key Role of Comparative Advantages of Population in China’s Economic Growth

China’s economic growth mainly relies on people, technology and scale. Regarding the people involved in economic activities, China’s advantage comes from economies of scale. In 1982, the employment figure was 525 million, and in 2012 the figure jumped to 1.125 billion, with no rivals in either the developed or developing worlds. The table shows that in 1982, the employment rate among 20 to 44 year-olds was 90 to 94 percent, with 410 million 20 to 59 year-olds participating in economic activities. In 2012, the figure from a sample survey reached 700 million. There is a huge population of well-educated professionals and technicians. According to the 2012 China Statistical Yearbook, 6.75 million students graduated from secondary vocational schools with 21.1 million students still on the campus; 6.25 million students graduated from colleges with 23.9 million students still at school; and 486,500 postgraduates obtained diplomas while 1.72 million were still studying for one. These skilled workers are equal to the entire population of some developed countries, laying a solid foundation for China’s sustainable development and economic growth. This provides China with a comparative advantage that leads to sufficient competition and lower labor costs, even lower than that in many developing countries.

Taking advantage of its large population is central to the success of China’s opening-up and reforms. But for the first three decades since the reforms, the comparative advantage had been in unskilled workers providing cheap labor, with abundant options combining land resources, international capital inflows, and advanced equipment imported from abroad. But as time passes and the international division of labor changes, the advantage moves towards professionals graduated from secondary vocational schools, college graduates and postgraduates. They have enhanced China’s status in the international division of labor, and changed the pattern whereby most of China’s industries were at the low end of the industrial chain.

Family planning policies do not determine whether a society gets old before it becomes affluent or vice versa. However, they are beneficial for the harmonious and balanced development of society and the stabilization of the family as well as optimizing population structure. Following the Wenchuan earthquake and other natural disasters, many families lost their only child, resulting in deep resentment against the one-child policy. China is now fine tuning its population policy in consideration of social, moral, and cultural factors instead of the change in demographic dividend.

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