Explained: The Ripple Effects Of China¡¯s Shrinking Population

China's population has decreased for the first time in 60 years, marking a historic demographic shift. The population of the most populous country in the world decreased by 850,000 people, according to the most recent statistics on population released by the Chinese government.

According to data from China's National Bureau of Statistics, there were almost a million fewer people living in China in 2022. 9.56 million babies were born in China last year, a significant decrease from the 10.62 million babies born in 2021. The nation experienced 10.41 million deaths concurrently.

Role of fertility rate

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In the late 1980s, China's total fertility rate (births per woman) was 2.6, significantly higher than the 2.1 required to replace deaths. Since 1994, it has fluctuated between 1.6 and 1.7, falling to 1.3 in 2020 and to just 1.15 in 2021. Comparatively, the total fertility rate in Australia and the US is 1.6 births per woman. Ageing Japan has a value of 1.3.

Despite China abandoning its one-child policy in 2016 and implementing a three-child policy last year, supported by tax and other incentives, this has occurred. Diverse theories explain why Chinese women continue to delay having children despite state incentives.

One is that people are accustomed to having small families, another is the rising cost of living, and a third is the rising marriage age, which delays pregnancies and reduces people's desire to have children.

Furthermore, there are fewer childbearing women in China than one might anticipate. Since 1980, when couples have been allowed to have only one child, many of them chose to have a boy. As a result, the sex at birth ratio increased from 106 boys for every 100 girls (the ratio in the majority of the rest of the world) to 120, and in some provinces, to 130.

What are the reasonable assumptions behind the shrinking?

China's overall population increased by a post-famine low of 0.34 per 1,000 people in 2017.

According to predictions made by a team at the Shanghai Academy of Social Sciences, it will fall this year by 0.49 in a thousand for the first time since the famine. The turning point has arrived ten years earlier than anticipated. The China Academy of Social Sciences predicted the population would peak in 2029 at 1.44 billion people as recently as 2019.

According to the 2019 United Nations Population Prospects report, the peak was predicted to occur in 2031-23, at 1.46 billion people. After 2021, the population of China is expected to decrease by an average of 1.1% annually, reaching 587 million people in 2100, less than half of what it is today.

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That prediction is based on the reasonable hypothesis that China's total fertility rate will drop from 1.15 to 1.1 between now and 2030 and stay there until 2100. China's economy will be significantly impacted by the quick decline.

By 2100, the working-age population in China is expected to have decreased to less than one-third of its 2014 peak.

For the majority of that time, it is anticipated that China's elderly population (those 65 and older) will keep growing, surpassing the country's working-age population close to 2080.

What does it mean for the working-age population in China?

This means that by 2100, 100 working-age Chinese will have to support up to 120 elderly Chinese, compared to the current ratio of 100 working-age Chinese to every 20 elderly Chinese.

If productivity doesn't increase quickly, China's working-age population will continue to decline by an average of 1.73% annually, which will result in much slower economic growth.

Low-margin, labour-intensive manufacturing is expected to move out of China and into labour-rich nations like Vietnam, Bangladesh, and India due to higher labour costs caused by the rapidly shrinking labour force.

China already charges twice as much for manufacturing labour as Vietnam.

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How will it impact the economy of China and the world?

In order to meet the demands of an ageing population, China will also need to devote more of its productive resources to the provision of health, medical, and aged-care services.

According to simulations conducted by the Centre of Policy Studies at Victoria University, China's pension payments will increase fivefold from 4% of GDP in 2020 to 20% of GDP in 2100 if the country's pension system is left unchanged.

These modifications will probably necessitate a reorientation of exports toward manufacturers outside of China for resource-exporting countries like Australia. The source of goods for countries that import goods, like the United States, is expected to gradually shift toward new and developing manufacturing hubs.

Given China's importance in global supply chains, particularly as a manufacturing power, this demographic crisis will have serious repercussions for the entire world. A decrease in the nation's productive workforce will have an impact on the entire global economy.