China Prepares for an Aging Population

China's economic miracle has been importantly facilitated by its demographic dividend, derived from the rapid decline in fertility--a generation in which there were lots of working age people relative to both the young and the old populations. That is a transition, of course, and China's work force is now beginning to age. As people retire, the result is lower productivity per total populaiton and increased pension costs. What to do about it? The first obvious solution is to raise the age at retirement, and this week's Economist reports that China is seriously contemplating that policy shift.

With the number of pensioners set to soar, and the number of young workers able to support them unable to keep up, China has been making long-overdue changes at both ends of the demographic spectrum. Late last year it started to ease its restrictive one-child policy. Now it is planning an adjustment to the retirement age.

Allowing people to choose if they want more than one child may prove more popular, but raising the retirement age is likely to bring more economic benefits. Officials at China’s Ministry of Human Resources and Social Security (MHRSS) have solicited advice from Chinese and foreign experts, including the World Bank and the International Labour Organisation. Many have advised raising standard retirement ages—currently 50 or 55 for women and 60 for men—by five years each.

The government has clearly signalled its intention to follow this advice. In October an MHRSS official openly supported the idea, and in November, an important meeting of senior party leaders included three “gradual” adjustments in retirement age in its official policy document.

This is the same policy that all aging countries have been following, because the longer life expectancy at the older ages means that a young retirement age--put into place when few people survived to very old ages--just doesn't make sense. Look at these numbers:

The proportion of China’s population over 65 is currently 9%, but is projected to grow to 24% by 2050 [based on data from the UN Population Division]. A report published in December by the Chinese Academy of Social Studies (CASS) said that without adjustments, pension deficits would appear in 2030, and that by 2050 the accumulated shortfall would amount to 90% of China’s GDP.

Raising the retirement age is never popular, but communal bankruptcy is never popular, either.