Can China Be Both Old and Rich?

The common mantra in the world is that "China will grow old before it gets rich." This is based on the fact that the rapid drop in fertility in China, which began in the 1960s but was entrenched with the implementation of the one-child policy in 1979, was a major contributor to China's economic rise. We demographers know with certainty that such a rapid drop in fertility, especially when combined with declining mortality and a distaste for immigration, will lead first to a "demographic dividend" of a large working age population in relation to the younger and older populations, and will then lead to an aging of the population in which the older population increases rapidly in relation to the working age population. Chinese demographers understand the age transition and China's rise in economic growth has been fueled by this age transition in combination with hard work and rising levels of education. 

Will that aging population lead to economic collapse? The common view is that it will, and this is expressed in a story published a couple of days ago in the Wall Street Journal. The headline is "A Limit to China's Economic Rise: Not Enough Babies." 

China is careening toward a demographic time bomb. In another decade, it will have more people over 60 than the entire population of the U.S. Its workforce is shrinking, and not enough babies are being born.

Actually, the story is more nuanced, because it mainly talks about the constraints that the Chinese government continues to put on people to limit family size. To be sure, I am not in favor of any government telling people how many children they should or shouldn't have. But it has seemed clear to me for a long time that the Chinese government (which continues to drive the bus in China) does not see a larger population as a "solution" to the aging problem. Rather, it has been going around the world investing in projects and grabbing technologies that will allow its economy to survive even in the face of an aging population. The best new evidence of that is an Op-Ed piece in today's NYTimes by Thomas Friedman.

ACT III opened in October 2015, when China announced its new long-term vision: “Made in China 2025,” a plan to dominate 10 next-generation industries, including robotics, self-driving cars, electric vehicles, artificial intelligence, biotech and aerospace. 

When the U.S. and Europe saw this, they basically said: Wow. We were ready to turn the other cheek when your combination of hard work, cheating and industrial policy was focused on low-end industries. But if you use the same strategies to dominate these high-end industries, we’re toast. We need some new rules.

The point is that "Made in China 2025" is clearly a plan to keep the economy booming despite China's aging population. In some ways, that would only be fair, since the graying population represents the cohort that suffered through the one-child policy and worked hard enough to propel the Chinese economy forward. Friedman does not talk about the demographic issues, but his other writings in the past suggest that he is well aware that a clear underlying motivation for what is happening in China is that the government wants the country to be both old and rich.