China’s Population Peak: Just the Tip of the Iceberg

John Piggott is UNSW Scientia Professor of Economics and Director of the ARC Centre of Excellence in Population Ageing Research, at the University of New South Wales in Australia.

Global media have been busy heralding China’s recent population peak, predicting a steady decline in both population and economic activity of the world’s second largest economy. This is true as far as it goes. But the story is far larger, both for China and for “emerging Asia” more generally.

Global Population Trends

Depending on the definition, emerging Asia comprises somewhere between 15 and 40% of the world’s population, so what happens there, matters. This part of our world has some common characteristics: rapidly declining fertility; rising life expectancy; low-to-medium per capita income; high ratios of informal labour; massive rural to urban migration with children often left behind with grandparents; and limited coverage of social protection structures.

This combination of characteristics leaves the rising numbers of older people vulnerable in new ways. For example, increasing life expectancy also means more years in poor health at older ages, just as family support – the traditional source of old-age care – has been compromised due to fewer children and greater migration.

China is One of Many

China’s one-child policy is frequently cited as the reason for its population turn-around, yet across emerging Asia, all of these nations have experienced dramatic fertility declines. China’s fertility rate, estimated to be as low as 1.15, implies that each successive birth cohort will fall by more than half every two generations. Even allowing for additional longevity, we could see China’s population halve from, 1.4 billion to 700 million, by the end of this century.

While this is the lowest fertility rate among developing nations in the region, several other emerging Asian countries also have rates below replacement, mimicking the more developed countries of the region, like South Korea, whose fertility rate has fallen below one.

Even in India, destined to replace China as the world’s most populous country this year, fertility has just fallen below replacement, according to recent World Bank statistics. The workforce required to sustain economic growth and tax revenue to support older people who have exhausted their earnings capacity will not be there. This will be a huge challenge for countries that have not yet joined the ‘rich country’ club, making social protection and healthcare support very expensive.

What Does All This Mean?

To illustrate these points, it is useful to focus on four countries that typify the emerging Asia experience: China, Indonesia, Thailand, and Vietnam. In aggregate, they are projected to have about the same population in 30 years times as now: 1.9 billion. Yet over the same three decades, the population age 60+ is projected to roughly double, from about 324 to 640 million, and the rate of increase among those 80 and older will be even faster according to recent data from the United Nations. Poverty rates are also higher among older people in these countries, exacerbated by major rural to urban migration flows. Many of these nations will get old before economic growth delivers affluence, even more so in the wake of the pandemic.

The impacts of this transition on both labour force and fiscal outlays will be substantial. For example, the share of the working age population (WAP) in both China and Thailand will shrink by about 10% by 2050, and even currently “younger” countries like Vietnam and Indonesia will see falling WAP shares over the same period. This process will put much greater pressure on government outlays, with quantification dependent on the nature of reforms: World Bank estimates suggest an incremental 5% of GDP in some countries for expanded social protection systems.

In these four countries, informal employment is also very high, potentially constraining growth. The development of strong income, health, and aged care support systems will be problematic, especially for lower-middle income countries. Early planning and technical assistance are crucial if widespread human suffering is to be avoided. This projection contrasts sharply with other regions also experiencing demographic change. For example, in Latin America, informal employment typically comprises less than half the labour force.

High rates of informal employment make centralised intervention particularly challenging, as well as compromising productivity and economic growth. Dealing with this dramatic transition requires technical capacity and empirical evidence for policy formulation which is not currently available. About 80% of workers in Indonesia are classed as informal labour, which is typical of poorer nations in Asia. Even China, the most successful economy in the group when it comes to formalisation, sees more than 50% of workers employed informally.

What Can Be Done?

Providing government support to these people is financially difficult and logistically challenging. And in these countries, coverage of social pensions is typically far from universal and certainly not at adequate benefit levels. Nevertheless, research suggests such programs could be made affordable, for example through means testing or proxy means testing and indexation of access age to remaining life expectancy, and the mobile and fintech revolutions increasingly make reaching previously excluded groups technically feasible with sufficient political commitment and investment. The economic, social, and political dynamics in emerging Asia are often neglected in day-to-day policy discussions. Therefore, research and policy initiatives will be increasingly important to meet these challenges.

Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.