Second Demographic Dividend Expected

When economists are busy talking about the future of economic development, demographists also give out their own opinions. In the International Seminar of Demographic Dividend and Social Economic Development, a Canadian demographist pointed out directly that population is the core factor to the depression of global economy.

A week later, on the morning of August 28, Mr. Zhang who is living in Tongzhou District, Beijing, walked out of his community as usual. After buying some materials for dinner, he spent five yuan having his hair cut. Though he could earn 2,100 yuan per month from his pension fund, he is very thrifty. Apart from the expense for daily lives, the expenditure on the medical care of him and his wife is also very huge.

Simultaneously, Mr. Zhang’s 38-year son was driving on the way to the downtown. The gasoline he spent 300 yuan fueling several days ago was little to be left. He went to his customary gas station. At noon, he would have a lunch with one of his clients in a Cantonese restaurant. Mr. Zhang Jr. has been married for many years and the couple remained DINK. Every month they spent over 5,000 yuan in maintaining his car, shopping and having dinners in restaurants.

The different consumption habits of Mr. Zhang and his son are a simple case, but it reflects the fact that consumers at different ages have different consumption behaviors. In addition, the influence of ageing over consumption is a silhouette of how it influenced the economy.

The investigation reveals that the demographic changes also involved the savings rate, labor force supply, resource allocation and so on. In that way, they apply great influence over the “three carriages” (consumption, investment and export) that pull the economic development of China.

For this, Cai Fang, head of the Population and Labor Economy Institute at the Chinese Academy of Social Sciences, said that China would be greeted with new development stimulus by improving the aged care, increasing the labor force participation rate, and digging up the second demographic dividend against the nationwide ageing.

Population as the Core Factor

“Ageing is a serious economic problem it will cast all-round and lasting influence over economy. Pitifully, there is no common knowledge about this problem,” said Dang Junwu, deputy director of the Chinese Ageing Science Research Center.

In the International Seminar of Demographic Dividend and Social Economic Development, a scholar from Hubei, China said that the ageing of population is an issue within the statistics. The United Nations pointed out that it is not right to follow the standard that a aged society is where people older than 60 account for 10% of the total population and people older than 65 account for 7% of the total population.

Cai Fang studied the 6th census of China and found out that the potential economic growth rate of China decreased to 7.8% and 6.3% in the “12th Five-Year Plan” and “13th FiveYear Plan” partially due to the new demographic changes.

The demographic changes Cai Fang referred to are an significant challenge that confronts China – the changes of demographic structure in China include the fewer young children (the proportion of people aged between 0 and 14 decreases) and more old men, say, the ageing.

The 6th census of China which was finished last year revealed the proportion of people that are 0-14 years old in the total population already dropped from 22.9% in 2000 to 16.6% in 2010 while people aged over 65 saw their proportion increase from 7% to 8.9%. Then, the latest report of the World Bank forecasts that the population aged over 65 will take 16.2% of Chinese total population in 2030 and the proportion is 24.7% in 2050.

According to a survey by the United Nations, the median age of China (the figure in the middle part of people’s ages in country that are arranged from low to high in natural order) will surpass the one of the US in 2020 and then defeat Europe in 2030. The Report about Human Resource of China issued in 2010 stated that every two taxpayers will afford one pension fund beneficiary by 2035.

More shamefully, the ageing problems China faces might be more serious. Prof. Guo Zhigang from the Department of Social Sciences of Beijing University thought the previous censuses had deflections from the reality and underestimated the level of ageing.

In Guo Zhigang’s opinion, the total birthrate officially recognized is 1.8 for long, but based on the result of 5th and 6th censuses, the birthrate was respectively only 1.23 and 1.18, much lower than the 1.8 figure. Even the missed figures were put into consideration, the total birthrate was less than 1.4. The overestimation of birthrate and the underestimation of average lifespan will lead to the ageing level that is greatly out of expectation.

Li Jun, a fellow with the Quantitative Economic and Technological Institute of the Chinese Academy of Social Sciences, said that the ageing of population will have negative influences over capital accumulation, labor force supply and technological improvement and will finally drag down the potential of Chinese economy.

A simulated estimation reveals that the ageing of population will apply the biggest influence over China’s economic growth from 2021 to 2025. In that period, the potential annual economic growth rate of this country will drop 2.2%. From 2011 to 2050, the ageing of population could pull the annual economic growth rate of China by 1.7 percent averagely.

There were cases of how ageing affected economy. When Japan ran out of its demographic dividends (the increasing ratio of children against the aged) in the early 1990s, it was trapped in the “lost 10 years” due to the underperformance of total factor productivity.

Rafael Gomez from the Labor Relation and Human Resource Research Center at the University of Toronto made a through study into the influence of population over the great depression in 2008. The result shows that the reverse demographic dividends (the decreasing ratio of children against the aged) and the ageing of labor force were the major reasons to the economic depression.

Then, another report made by Goldman Sachs reveal that the BRICS will meet the decreasing economic growth rate with the reduction of young labor force and the growth number of the aged. Influenced by it, the global economy is slowed as well. “Undoubtedly, the population is the core reason to the global economic depression,” said Gomez.

Forewarning from Productive Factors

Demographic dividends contributed a lot to the fast development of Chinese economy in the past 30 years. As Cai Fang estimated, the demographic dividends contributed to the 26.8% of the GDP growth annually from 1982 to 2000. The demographic dividends’ driving force for the economic growth mainly comes from the sufficient labor force supply and high savings rate.

In the demographics, people aged between 15 and 64 are called labor force. As the most populated country in the world, the gross dependency ratio (the ratio of non-working- age population against the working-age population) kept dropping for 30-40 years from the 1960s and 70s.

This made Chinese people, and even some scholars believe that the Chinese labor force is kind of unlimited and inexhaustible resource. Many Chinese enterprises are quite picky when it comes to recruiting people as they are inclined to employ the most energetic labor force aged between 18 and 25.

However, the situation met great changes from 2003. In that year, the shortage of migrant workers began to emerge in coastal areas and then gradually spread to the whole country. Previously, Cai Fang has foreseen that the demand for labor force will grow at a faster ace than the supply of labor force. He declared that the unlimited supply of labor force is over and the wage of ordinary workers is going to increase.

In 2001, migrant workers who left their homes in rural areas to cities were paid over 600 yuan per capita each month. But from 2003, their salary increased year by year. According to the National Bureau of Statistics, the monthly salary of a migrant worker was 2049 yuan in 2011, three times of ten years ago.

The increasing salary is only one aspect. And many employers found that even the higher salary could not help to recruit enough people as before. Those who used to work for them seem to be encouraged by something and could immediately leave if they are not satisfied with the salary.

What’s behind this is the significant change of workingage population in China. According to the UN’s Global Population Outlook, the workingage population will reach the new high of 998 million in 2015 before falling year by year. In fact, the UN overestimated the gross birthrate of China, so the peak might arrive before 2015.

Demographists forecast that the number of workingage people who are 15-59 years old will decrease to 710 million by 2050, 230 million smaller than in 2010. If the current industrial development pattern cannot effec- tively go on the way of replacing labor force with capital and technology, China will meet a serious lack of labor force supply around 2030.

The decrease in savings rate is another result of ageing of population. In the past dozens of years, demographic dividends brought the high savings rate, which worked as a pillar to support the investment, making it the biggest “carriage”for China’s economy.

The savings rate in China is among the top in the world. In 2010, the deposits in this country accounted for 50% of the GDP, much higher than developed countries. But the situation is going to change soon. The scholar found that the economic development makes the fostering of old people negatively related with savings rate, i.e., the higher the ageing of population is, the more obvious the decrease in savings rate is.

Consumption, which is one of the “three carriages”, is also influenced. Mr. Zhang described at the beginning of the article is a typical example. After retirement, a man would have to endure the decreasing consumption power. This is applicable to most Chinese people.

The survey reveals that the consumption made by old people is only equal to 70%-80% of working-age people. In consideration of the imperfect social security system and income difference between rural and urban areas in China, the gap is even bigger. That means that more old people will lead to the stagnancy or even reduction of consumption.

Transformation Requested

The influence of ageing over the economic development is not limited to the supply of labor force, savings and consumption. The allocation of resources, productivity, real economy and capital economy is to be somewhat influenced. An economist pointed out that the decrease of economic growth rate in this April and May was caused by many factors, but the ageing of population is one of important ones.

The 12th Five-Year Plan of National Population made it clear that people born in the first peak of births in the 1950s have already entered into their old age. China is going to be greeted with another round of intensive growth of old people in the 12th Five-Year Plan. The number of old people aged over 60 increases by 8 million people per year and the total number of exceed 200 million. The Plan specifically underlines that the contradictions of demographic structure has already become a serious problem that affects the social and economic development.

This big problem is reckoning a transformation of the Chinese economic development pattern. Prof. Ren Yuan from the Department of Social Development and Public Policy in the Fudan University, said that the biggest feature of ageing in China is its speed. That requires a fast transformation or the economic structure will not get used to the overspeed change of demographic structure.

Then, only the continuous improvement of total factor productivity can be counted on to keep the sustainable development of economy when there are shortage of labor force and decrease in capital return. In Cai Fang’s opinion, when the complete ageing of population is approaching, the growth pattern based on factor investment instead of total factor productivity cannot be sustained.

As an integral part of the total factor productivity, the technological progress driven by education will play a more important role in the economic development of China in the future. This makes the reform to current education system and policy more essential and pressing.

The “education first” investment strategy should be adopted to make the best of education to drive the economic growth of China. How will this problem be solved will decide whether China could withstand the test of the fast ageing.

The real situation is that education is the soft spot of China. Apart from the widely scolded education system, the shortage in vocational training prevents working-age people to exert their whole power onto the economic development.

Therefore, the current problem for China is how to make full use of demographic dividends.

“Only half of the first demographic dividends are used. There will be more potentials to be evacuated,” Cai Fang said.

Giving migrant workers urban identities is a good measure to release the potential of demographic dividends. Presently, the limitation of household register and the imperfect social security lead to the extremely low level of “urbanization”of migrant workers, stopping 200 million migrant workers from bringing their full power into use.

Therefore, if China could make full use of the rest part of first demographic dividends and dig up the second demographic dividends against the ageing through consummating aged care system and increasing the labor force participation rate.

“The Chinese economy is like a fast-racing train carrying heavier and heavier load. The engine is losing its power and the train is decelerating. Measures must be taken at this moment or the Chinese economy will be stagnant like Japan for ten years or even longer,” said Cai Fang.