China's demographic challenge is historically unprecedented, as its export-oriented economy had befitted from seemingly inexhaustibly cheap finance and labour.
By Brig Kuldip Singh (Retd)
On April 29, The Financial Times reported that Beijing was dithering on publishing the December 2020 census because party officials did not know how to report that China’s population of 1.4 billion is shrinking. This was immediately followed by a denial by Beijing stating, ‘according to our understanding, in 2020, China’s population continued to grow’ – but no figures were provided. Separately, Huang Wenzheng of the Beijing-based Center for China & Globalization added, “the census results will have a huge impact on how the Chinese people see their country and how various government departments work … need to be handled very carefully.” Whatever be the reality, the fact is that China is looking at a demographic decline – and the roots of the problem lie in China’s one-child policy and its aftermath.
China’s ‘One-Child policy’
In order to curb a massive population growth (from 54 crores in 1949 to 94 crores in 1976) and combat the problem of feeding its enormous population, China initially introduced the family planning slogan of “later, longer, and fewer”, but finally enacted the ‘‘one-child policy’’ in 1979. Under it, citizens could have only one child, but there were exceptions, e.g., (i) in rural areas of Han China, where local governments did not provide social services, farmers were at times allowed a second child, e.g., if the firstborn was a female; and (ii) ethnic minorities (including Tibetans, Uighurs, etc) were exempt from the ‘one-child policy’ (Uighurs in rural areas were allowed to have up to three children).
As a consequence, China’s population growth slowed dramatically, and between 2001 and 2010, the growth rate fell to an annual average of 0.57 percent, about a fifth that of the 1970s. Underpinning this decline was China’s extraordinarily low fertility rate of 1.4 children per mother; this number is lower than the average for developed countries (1.7), and significantly below that of countries like the US and France (around 2.0). Yet, China reached the 1.4 billion population mark by 2019 on account of the youth bulge of the 1960s to 1980s, and increased life expectancy. And as China transformed itself from an agrarian economy into an industrial nation, its economic success helped lift over 85 crore people out of poverty. This led even the UN Population Fund to recommend (1991) China’s ‘‘One-Child policy’’ to countries such as Peru and Vietnam. However, by 2008, three main adverse effects of the ‘‘one-child policy’’ had become apparent.
Three adverse effects
Gender imbalance: Although the ‘‘one-child policy’’ reduced China’s population by an estimated 40 crores since implementation, it created a gender imbalance in favour of males. The adverse male-to-female ratio fuelled social tensions, as also created conditions for regional human-trafficking, ‘mail-order brides’ and an illegal-adoption market to compensate for the lack of Chinese women.
Demographic inversion: Fewer children being born each year led to a diminishing pool of young people. The 2019 report by China Academy of Social Science states that (i) China’s population will hit a peak of 1.44 billion in 2029, then steadily decline and reach its 1996 levels of 1.25 billion by 2065; (ii) the number of elderly citizens (above 60 years of age) will rise to 30 crores by 2025; and (iii) the proportion of 30-50-year olds will fall from 50% of the population to 40% by 2030. Separately, the Ministry of Education reported a 20% drop in primary school students between 2002 and 2012, and the shutting of 13,600 primary schools nationwide. An ageing population and a shrinking workforce entail following consequences:
- The reducing number of young people/workers led to comparative labour shortages and consequent wage inflation. The labour shortage impinges on total factor productivity, which along with capital, are responsible for GDP growth.
- Greater pressure on China to ramp up social welfare structures and costs. This is because a smaller number of workers were having to support an ever-increasing number of retirees, with many young couples having to look after four-to-six parents/grand-parents.
- Relatively low domestic consumption – it is young people who are more prone to buying things like property, consumable, household gadgets, etc.
- “Idea stagnation” – an older population comes with a loss of creativity and productivity, which in turn inhibits innovation in the high-tech and service industries.
- Relative paucity of recruits for its armed forces, leading to the government having to lower recruitment standards.
Aggravation of the ‘Rich Coast- Poor Interior’ divide: Historically, the coast-interior divide has been a major cause of instability in China. To develop, China had to engage in international trade. Since most trade moves through maritime routes, the coastal areas thus become wealthy even as the influence of foreign traders over such regions increases. As trade intensified, wealth in the coastal provinces increased dramatically vis-à-vis the Chinese in the interior. The ‘One-Child policy’ further aggravated this coast-interior divide – its relatively relaxed application in rural areas but stricter urban monitoring led to rural areas having relatively higher birth rates but lower job prospects and higher unemployment, and urban areas being beset by older demographic cohorts and ageing workforces.
Abrogation of One-Child Policy
It was clear that unlike other countries (e.g. UK, USA, and Australia), China, with its closed immigration system and authoritarian regime, cannot rely on immigration to bridge the demographic gap. Hence, Beijing first eased its one-child policy by 2013, and finally scrapped it in December 2015, and allowed couples to have two children. Although many premised it as a solution to China’s demographic travails, recent official data reveals that the relaxation has not led to a boom in births, and hence is unlikely to solve the problems related to the paucity of young and abundance of old. This is because most eligible couples in China aren’t eager to have a second child. As the country grew rich, it created two Chinas: a relatively wealthy urban/coastal region home to 85 crores, including most of China’s middle class; and a largely rural interior home to about 55 crores. And people in urban areas aren’t keen to have more children. While children are deemed a productive asset and a source of income in agricultural and low-level industrial societies, in urban orders, children are objects of massive consumption (rearing/raising; education; support till job/married). Insofar, as the labour problem is concerned, increasing the cohort of young people takes decades, as babies born now will reach working age in about 18 to 24 years.
What’s China doing to address this problem
China’s demographic challenge is historically unprecedented, as its export-oriented economy had befitted from seemingly inexhaustibly cheap finance and labour. With the youth cohort declining, China is, like Japan, now looking at technological means to overcome its demography-related economic and military issues.
Porting of low-tech jobs: With labour costs rising in China, a large number of low-end manufacturing jobs are being ported to other countries in South-East Asia and South Asia, where labour costs are far lower vis-à-vis China. This is one of the aims of the China-Pakistan Economic Corridor – with its emphasis on power plants, China expects Pakistan to be one of the hubs of cheap labour executing low-tech jobs.
Automation, artificial intelligence and robotics: China is making immense efforts to move up the value manufacturing chain. Its final objective is to leapfrog the traditional evolutions in the manufacturing process, and move directly to a highly automated, integrated and flexible manufacturing process that can compete with manufacturing in any country. This will solve many problems, including that of work force numbers and rising labour costs, but more importantly, will allow Chinese goods to remain competitive in the global market. Labour is one of the main inputs costs – and when a company replaces a shift of three with one robot, it saves on not only the salaries of the labour but associated outlays too (bonuses, medical acre, food, rest-rooms, parking, pensions, etc). Notably, China is the world’s fastest growing market for industrial robots and a world leader in Artificial Intelligence – by 2019, Chinese businesses filed 473 of the 608 Artificial Intelligence patents lodged with the World Intellectual Property Organisation and a third of all blockchain patents.
PLA: Although China has a very large population, recruitment by the PLA is restricted to an age bracket of 18 to 24 years. Add to this the various preclusive standards – education, physical, medical – and the size of the youth cohort in China – and it will be evident that the PLA has a very finite pool to recruit manpower from. This, inter alia, is one of the reasons the PLA is being simultaneously downsized and modernised. This includes a gradual shift away from conscription to regular service with better qualified personnel, induction of precision and autonomous weapons, automated command tools for decision-making, and amalgamation of forces for integrated joint operations.
In sum: much like Japan, the Chinese society and economy is being set-up for a massive, structural transformation.
(The author, commissioned in 1976 into the Armoured Corps, was the Director (Intelligence Coord) of the Defence Intelligence Agency and the longest serving Principal Director (Defence) in the National Security Council Sectt. Views expressed are personal and do not reflect the official position or policy of Financial Express Online.)