China will get old before it gets rich
February 1, 2010

Demographers in China will celebrate 2010 as the year in which the nation’s demographic dividend will peak. From this year on, the population of China’s elderly will overtake the number of  working children, meaning there will be less people supporting a larger population, adding to demographic stress and lower growth rates.

Since the 1970’s, when China’s one child policy was introduced, the nations birth rate and therefore the number of dependent children, has been plummeting, whereas the number of adults has been gradually rising. The result has been a declining dependency ratio. It is this low dependency ratio which created a massive work force and consumer base that has fueled China’s meteoric growth.

However, from 2010 this will start to change. China’s one child policy still strictly in place, the number of dependent children will remain low, however as life expectancy goes up, the number of older people will grow, reaching a dependency ratio of 0.6 by 2040, according to the UN.

Contrastively in India the working-age population will increase by 240 million (four times the total population of the UK) over the next two decades, keeping the dependency ratio to 0.4. By 2030, India is expected to have overtaken China as the world’s most populous country, with a substantial proportion of its population working, earning and consuming.

Demographers fear that a higher dependency ratio creates an added burden on the social security plans of a government. While communist, China’s iron rice bowl provided cradle to grave social security for its people, the system was dismantled 20 years ago, now China’s pension system can only hope to cope with the growth of its elderly.

The country however yet has about 20 years to get its act together. Although its workforce will start shrinking from 2010 relative to the population, in absolute terms both its number of workers and its population as a whole will grow until about 2030, when the population will peak at around 1.46 billion. After that it will begin to decline gently, The Economist reported.

A Deutsche Bank report points out that while China’s demographic window is closing now, economic policies could help buffer the negative demographic impact on per-capita growth. Both India and China could also draw on their massive rural population to propel growth, however labor supply is not inexhaustible nor irreplaceable by neighboring nations with lower demographic dividends such as Vietnam, Myanmar and Cambodia.

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