Grey matter

Its aging population is an issue of major concern for China requiring policy changes to address it

China has entered the initial phase of an aging society, which will create challenges but also opportunities for its socioeconomic development.
China's total population is expected to peak around 2029 and to start to decline soon after that. But the country's working-age population peaked in 2012 and has been dropping for several years in a row. Therefore, the total dependency ratio is on the rise, that is, the number of people that each working-age person needs to support is increasing.

China's rapidly aging population will demonstrate five features from 2018 to 2049.

First, the elderly population will peak with a higher degree of aging. The total population of Chinese seniors will witness two growth peaks. The first peak will arrive from 2018 to 2022, when the first wave of "baby boomers" following the founding of the People's Republic of China in 1949 enter old age. The second peak will arrive from 2027 to 2038, when China's second wave of "baby boomers "enter old age. The first growth peak will result in an annual increase of 8.6 million elderly people and the second an annual increase of over 10 million elderly people. China's elderly population will reach around 400 million by 2049, or 28.9 percent of the total, higher than the 25.7 percent average in OECD countries.

Second, the structure of the elderly population will change, with an increase in the number of people aged 80 or over. China will witness fast growth in the elderly population under the age of 80 from 2019 to 2038, which is expected to account for two-thirds of the total elderly population. Starting from 2041, however, the number of elderly over the age of 80 will expand dramatically.
Third, China's workforce will shrink continuously, with the number aged 55-64 increasing dramatically, accounting for around 27 percent of the total workforce by 2049.

Fourth, with the old-age dependency ratio exceeding the youth dependency ratio, the gap between the two ratios will rapidly widen, indicating a shift in dependency from children to the elderly.

Finally, the number of smaller-sized families will increase, with the group of empty-nest seniors rapidly expanding. The average number of family members in a home will decline to 2.51 by 2050 from 4.41 in 1982. The decline is more noticeable in rural areas, where residents used to have more children than they do now and where children are migrating to cities in large numbers. The shrinking of family size is accompanied by an enlarging empty-nest senior population. By 2050,10 percent of Chinese homes will be elderly living apart from their children alone or with a spouse.

Population aging represents an issue of major concern for China.

First, a rapidly aging society has economic implications. The sustained expansion of the elderly population plus the shrinking and aging of China's working-age population will deal a blow to China's workforce supply. Rapid aging will also undermine the quality and the accumulation of China's human resources. Furthermore, due to the greater dependency burden of the elderly population, China needs to invest more resources in elderly care, which in turn hampers the accumulation of human resources and the growth of the savings rate. As China's workforce further shrinks in years to come, the savings rate and capital formation will decline, bringing new challenges to the broader economy.

Second, an aging population will put more pressure on China's pension system. China used to have a pay-as-you-go pension system, where current workers' pension contributions would pay for current retirees' pensions. Such a system runs well when a country's working-age population accounts for a high proportion of the total population. However, as the population ages, the workforce shrinks and the number of retirees increases, and the system faces mounting financial pressure. There will be a big shortfall in the pension fund as the number of people that withdraw from the fund dramatically increases and the number of people that contribute to it decreases. Therefore, a mixed pension system was designed for Chinese workers in urban areas based on the model of social pooling combined with individual account. The transition from the pay-as-you-go system to the new system will help reduce the impact of population aging on the pension system.

Finally, the rapid aging indicates that the economically active population and the overall economy face a greater burden to support and provide the social services needed by older persons. The number of elderly with declining body and cognitive functions will drastically increase, creating a huge demand for eldercare services, which will in turn require a hefty input of human and material resources. The Chinese traditional family-based elderly care model can hardly be maintained with the expansion of empty-nest seniors, who find it more and more difficult to depend on their children as sole caregivers.

The population aging situation is compounded by a declining fertility rate. China has adjusted the family-planning policy as its population has grayed, birthrate slowed and its workforce declined, but the effect has been limited. The country will face dual influences from a shrinking female population of childbearing age and declining fertility intention in years to come. A national survey found that the average number of children that a Chinese woman of childbearing age is willing to have stands at 1.9, and the actual number will be even lower than 1.9 as women face lots of constraints in real life.

The fast aging population should spur policy changes. China should further exploit the second demographic dividend, transitioning from a focus on quantity advantage to quality advantage; address the weaknesses in the safety net for its senior citizens and establish a more flexible retirement system; improve its long-term elderly care services and security system; and implement more policies to encourage women to have more children.

The author is a professor at the National School of Development and director of the Center for Healthy Aging and Development Studies at Peking University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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