Superpower? by Raghav Bahl

Author:Raghav Bahl
Language: eng
Format: epub
Publisher: Penguin Group US
Published: 2010-09-23T16:00:00+00:00

Will China Grow Old Before Getting Rich?

Today, propelled by Deng’s ‘one child’ policy of the 1970s, China is growing old very fast. Two forces are at work. One is making people live longer, creating more old people in the population; but at the same time, the one-child norm is reducing the number of young people in the country. As fewer young people come into the productive age group of 15-65, and more get pushed into the post-retirement old-age group, China’s demographic tailwind could rapidly become a headwind. The growth of China’s labour force could end by 2030, beginning a decline of the kind seen in today’s slower western economies. The demographic bonus could vanish.

The problem is that such a rapid ageing is usually seen in mature, urbanized, industrialized economies that have grown over centuries. By the time these countries had grown old, they had also grown rich, like the US and Japan. BRICs estimates suggest that by 2030, China’s best case would be a per capita income of $22,000 against the US’s $61,000, Japan’s $60,000 and Germany’s $51,000.

Demographers point to a country’s dependency ratio and per capita income as key variables to track. The dependency ratio is simply the fraction of people who are either under-15, or over-65—that is people who cannot earn a living for themselves and are dependent on the 15- 65-year-olds. Japan has already hit a dependency ratio of 50 per cent, while Korea could get there in 2026, but the per capita income for both countries will be higher than $30,000 at that point. As against this, China could hit 50 per cent at a per capita income level of only $11,000. By 2050, China’s dependency ratio could reach 70 per cent, implying that seven people will depend on ten in the working age—again, at a far lower level of per person income.

But all is not lost yet; there are interesting counter-cyclical trends which could blunt China’s population deficit. For one, the quality of China’s workforce could be superior, as parents lavish all their love, affection and resources on a single child. The ‘education quotient’ per child is also likely to be much higher than earlier averages, as the ‘one child’ generation goes through China’s high quality schools and colleges. So on a ‘quality adjusted labour supply’ basis, China may not face shortages of the kind that a pure mathematical model may throw up.

To cap it all, China is looking to ease its one-child norm, which could swivel the current dynamic in a positive direction. In July 2009, Shanghai became the first city to launch an aggressive campaign to encourage more births. But the initial response, especially from urban areas, has been lukewarm. Only about five couples are applying for a second child every day in 115,000-strong Huinan. According to the Washington Post, a common refrain seems to be: ‘We were at the centre of our families and used to everyone taking care of us. We are not used to taking care of and don’t really want to take care of others.

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