An ageing population, overreliance on investment and the shifting geopolitical landscape are key challenges as the Asian giant shifts gears, says David Dollar.

China’s well-known story of spectacular growth, at around 10 per cent annually for 40 years, is coming to an end because of both domestic and global factors.

In analysing China’s prospects for the next several decades, three particular challenges are striking: The shift from a labour-surplus to a labour-scarce society; the shift from investment to innovation as the primary source of growth; and the shift in China’s global position from a rising power to an established power.Advertisement

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AN AGEING WORKFORCE

Rapid ageing is probably China’s biggest domestic challenge. The population over 65 will increase from 200 million today to 400 million by 2049, while the overall population will decline slightly.

Within this group, the most rapid rise will be in the population 85 and older: From fewer than 50 million today to over 150 million in 2049. The challenge of taking care of the elderly is compounded by China’s rural–urban divides.

Most of the elderly live in the countryside, though often their working-age children have moved to cities as migrant workers.

Since rural health systems are weaker than urban ones, taking care of the elderly will require more permanent migration to cities plus strengthened rural service delivery.

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China needs to scrap the hukou household registration system that limits permanent migration and to unify rural and urban pensions, health insurance and educational systems. This will be good both for social objectives and the efficient use of labour.

Dealing with ageing is first and foremost a quality-of-life issue, but it also has economic implications. China’s labour force will shrink, but by how much and with what impact remains to be seen. As China’s workforce shrinks, the 55 to 64 year-old cohort will increase dramatically.

Keeping this group and the “young olds” (65 to 85) healthy and active is China’s best hope for staving off a dramatic labour force decline.

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