Long the most populous country in the world, China is now experiencing a demographic crisis, the result of the one-child policy. A crisis that will slow down the Chinese economy in the long term. And call into question the objective of becoming the leading world power.
Chinese news is always the same story. Between story of the economic slump and speculation on government recovery measures. Almost reassuring in a world where everything moves very quickly, and where morning rumors are contradicted by afternoon tweets.
The real estate crisis, weak consumer demand, and even deflation are all themes discussed every day and structural challenges for the Chinese economy. But in the midst of all this, we almost forget the demographics. It’s a bit like the elephant in the Chinese porcelain store. However, it is the main factor which will slow down the economic growth of the Middle Kingdom in the long term. And make the equation of financing the social system, in particular pensions, even more difficult.
China is already raising the legal retirement age this year from 3 to 5 years. A necessity when 400 million people will be over 60 in 2035. Any resemblance to a local situation is obviously not coincidental. The same causes producing the same effects. Except that the Chinese political opposition is becoming more discreet.
Population halved at the end of the century
In the 1970s, the communist regime implemented the one-child policy in order to limit population growth. A policy that achieved its objective. The birth rate collapsed and the authorities were able to invest in infrastructure and economic development rather than in social policies.
Source: World Bank
The consequence of this policy is that Chinese families are structured in a pyramidal fashion. Four grandparents, two parents and one child. But as time passes, the child has become an asset, who must alone bear the weight of older generations. Now the pyramid is inverted. And an inverted pyramid is wonky. Above all for the sustainability of the social system.
This is why the government ended the one-child policy in 2015. It then authorized the Chinese to have 2 children, then 3 from 2021. But births are not increasing yet. As in many countries, women today do more education than in previous generations, which delays the age of having their first child. Then, raising a child in China is expensive, in particular because of the costs related to education. Finally, it is a marker of the lack of confidence of the Chinese in their economic future and in the capacity of the regime to improve their lives.
The population decline has already begun. In 2021, China’s population peaks at 1.41 billion. In 2022, the country will lose 850,000 inhabitants, then 2 million in 2023. At the same time, births continued to decline for the seventh year in a row. And the problem will worsen in the years to come, a consequence of the one-child policy. The population will thus be 600 to 700 million people in 2100, according to different estimates; or approximately a division by two.
Economic brake
Since 2023, China has even lost its place as the most populous country in the world to India. But the demographic problem goes beyond simple Sino-Indian rivalry. Indeed, in the long term, economic growth has two drivers: population growth and productivity gains. Simply put, more people working and more production with the same amount of labor or capital.
Given the population decline underway, China will therefore have to move forward with a single engine. As a result, Chinese growth will slow significantly. It should be around 3% in 2029, while it was still at 6% in 2019.
GDP growth – China
Source : Statista
The fall in the growth rate also reflects the failure of the Chinese authorities, who have not succeeded in pivoting an economy driven by exports towards a model driven more by domestic consumption. Which is obviously less obvious with a declining population. But political choices have not helped, with more supply policies than demand policies deployed. In other words, the Communist Party preferred to over-subsidize entire industries rather than provide support for consumption.
A country “old before it was rich”
China is not the only country facing population decline. And the resulting drop in potential growth. This is a trend found in most developed economies. Obviously, Japan is the first example that comes to mind. The population reached its peak in 2011, at almost 128 million inhabitants and should also be divided by 2 in 2100. Europe is also an aging continent. The EU population, which will reach 453 million people in 2026, is then expected to decline very gradually until 2050.
The difference is that China is not at the same stage in its development. Being the second largest economy in the world, it can no longer really be considered an emerging country. But it is not a rich country either. With 1.4 billion inhabitants, the GDP per capita was in fact only 12,600 dollars in 2023, which places China… at 90th world rank. The one-child policy therefore hastened things and made China a country that was “old before it was rich”.
The unbeatable United States?
China’s objective is clear: to become the leading world power by 2049, the centenary of the communist regime. To do this, it will be necessary to dominate the world economically, militarily and technologically. And therefore surpass the United States in these three areas, which are obviously linked.
Economically, the GDP of the United States was 27,000 billion dollars in 2023 compared to 18,000 for China. On the military level, even if the Chinese navy launches the equivalent of the French fleet each year, the budget of the People’s Liberation Army was around 300 billion dollars in 2023 compared to more than 900 for the Pentagon. And on the technological level, China is progressing very quickly, even dominating certain industries (electric vehicles, solar panels, batteries, etc.), but the Americans are doing everything possible to block their path, in particular with export restrictions on technologies the most advanced semiconductors. At this stage, the United States therefore remains well ahead. Especially since the demographics there are well oriented, with a population expected to grow very moderately over the course of the century.
For many years, China’s rise seemed unstoppable. And the path to global leadership is clear. From now on, Washington seems in battle order and Beijing bogged down. Because if economic forecasting over a horizon of a few quarters to a few years is always a difficult exercise, demography is an underlying trend, which stretches over decades and which is very difficult to reverse.
We now only have to wait until 2049 to find out if China succeeds in its bet. A distant horizon on which it is difficult to project oneself. None of us know where he will be or what he will be doing on that date. Except maybe one person. President for life Xi Jinping… who would then be 96 years old.
