[Population Aging to 2030, Day 2, Essay 1 of 2]

China stands on the threshold of a stunning demographic transformation with profound implications for its future prosperity and stability.  For the past three decades, China’s unusually favorable demographics, with a rapidly declining dependency burden and a rapidly rising share of the population in the working years, have helped to propel its spectacular rise in living standards.  Beginning around 2015, however, the demographic climate will change abruptly.  The elderly share of the population, now just 8 percent, will double to 16 percent by 2030, and then triple to 24 percent by 2050—making China an older country than the United States.  Along the way, China’s working-age population will also peak and begin to decline.

The most direct and certain impact of the demographic transformation will be a growing old-age dependency burden.  As China ages, a rising share of total economic resources will have to be transferred from working-age adults to nonworking elders.  In 2010, there were 7.8 Chinese working-age adults available to support each elder.  That ratio is due to fall to 3.8 by 2030 and to 2.4 by 2050, which means that the average burden that must be shouldered by each worker will more than triple.  Much of this burden falls on families today.  But in a rapidly aging and developing China, a larger share is bound to show up in public budgets and higher tax rates.

Figure 1. Proportion of seniors in China and the US, 1950 to 2050.

Even as the old-age dependency burden grows, economic growth will slow.  Over the three decades of the reform era, China’s working-age population has expanded at 2.0 percent per year.  By the 2030s, it will be contracting by 0.7 percent per year.  Contrary to common wisdom, the scope for internal migration to offset slower growth in the working-age population is limited.  Until recently, China was able to boost GDP growth by shifting millions of underemployed workers each year from the non-market rural sector into full-time, low-skilled manufacturing jobs that are integrated with the global economy.  But as China’s industries move up the global value-added scale, a serious mismatch is emerging between the skills of its remaining surplus rural labor and the demands of the jobs being created in the growth sectors of its economy.

Slower economic growth in turn has the potential to trigger social and political crisis.  The incredible speed of China’s development is already straining the economic and social fabric. Urbanization is weakening the extended family while industrialization is degrading the environment.   Worker mobility and turnover are rising and the income gap between the rich and poor is widening.  Social services are spotty and civic authority is strained.  Such stresses, bearable in a youthful society in which incomes are rising rapidly, may become less tolerable in an aging society in which economic growth is slowing.

Figure 2. Average Annual Change in Chinese Working-Age Population Size, by Decade

The rapid aging of China’s population could act as a multiplier on the stresses of rapid modernization.  While today’s developed countries became affluent societies before they became aging societies, China’s age wave will be arriving in a society that is still in the midst of development—and that has not yet had time to put in place the social protections of a modern welfare state.  Less than one-third of China’s workforce is now earning a formal retirement benefit of any kind, public or private.  Despite China’s lofty national savings rate, only a small minority of workers are accumulating sufficient financial assets to support themselves in retirement. The majority may have to fall back on the most traditional form of old-age insurance: children.  But many will have only one child, and among these many will not have a son, who in Confucian culture bears the responsibility of caring for aged parents.  Imagine, in China’s cities, tens of millions of today’s midlife adults maturing by the year 2020 or 2030 into tens of millions of indigent elders who lack pensions, lack access to health care, and lack adequate family support. Or imagine, in China’s countryside, entire towns of demographically stranded elders. Meanwhile, China’s yawning gender imbalance and the enormous bachelor surplus to which it is giving rise will threaten to become another source of social unrest.

China has been “peacefully rising” while its demographics have leaned with economic growth.  But by the 2020s, when China’s age wave arrives in full force, demographic trends may be weakening the twin pillars of the current regime’s legitimacy—rapidly rising living standards and social stability.  It is hard to gauge how great the risk of social and political crisis is, but the Chinese government, with its new mantra of “balanced development” and its increasing alarm about the dangers of the rural-urban income gap, the shredded social safety net, and environmental degradation, appears to be taking it seriously.  Throughout China’s long history, periods of strong central authority and empire building have alternated with periods of social and political chaos.  China’s premature aging may usher in the next turn of the cycle—or, as the regime attempts to avert this outcome, a new authoritarian clampdown.

As it happens, the 2020s is also the decade in which China is expected to displace the United States as the world’s largest economy.  “Power transition” theories of global conflict suggest that this moment could be fraught with danger.  The fact that it coincides with the arrival of China’s potentially destabilizing age wave may make it even more perilous.

Richard Jackson is a senior fellow at the Washington-based Center for Strategic and International Studies, where he directs the Global Aging Initiative.