Editor’s Note: The “China Human Capital Report 2016” shows that China’s labor force is aging, and may cause the nation’s economic growth to decline with in next fifteen years. China must increase its birthrate in order to have enough human capital for economic growth. We may see a push for families to have second children in the next few years.

This week, the China Center for Human Capital and Labor Market Research at the Central University of Finance and Economics released the “China Human Capital Report 2016.” The report shows that the average age of China’s laborers has increased to 36 years old.

Measuring Human Capital

Human capital is the measure of economic value of a labor force or individual worker. In 2014, China’s human capital was valued at 1503 trillion RMB. 1223 trillion RMB was in urban areas, accounting for 81.3 percent of the nation’s human capital. 280.6 trillion RMB or 18.7 percent of China’s human capital was in rural areas. The report stated that China’s human capital varied by region.

In Western China, human capital was only 110,300 RMB per capita. This is about 50 percent less than per capita human capital in China’s eastern region. Guangdong, Shandong, and Jiangsu were the top three provinces in terms of human capital.

China’s Aging Workforce

The average age of China’s labor force increased from 32 years old in 1985 to 36 years old in 2014. In rural areas, the average age of works increased from 32 to 37. In urban areas, it increased from 32 to 35. The main reason for this shift is China’s aging worker population.

In 1985, the average worker had 6.38 years of education. By 2014, the number had risen to 10.05 years. Workers in rural areas had an average of 5.67 years of education in 1985, and 8.16 years of education in 2014. In cities, workers had an average of 8.53 years in 1985, and 11.17 years in 2014.

The report found that China’s aging worker population has become an increasingly difficult obstacle for the growth of human capital, especially in the country’s northeastern region. The working population will begin to decrease in 2017 under China’s current retirement policy. The report predicts that the growth of China’s human capital will slow down and begin to decline by 2038.

Increasing the Birthrate

The report noted that China’s new Two-Child Policy will reduce the negative impact of a large population of aging workers. The effectiveness of the new policy will depend on how many families decide to have second children. If the birthrate continues to be low at 1.3 children per family, then human capital will begin to decline after 2028. If China can raise the birthrate to 1.6 children per family, then the decline in human capital can be delayed for 10 years. If the birthrate is raised to 1.93, then human capital will continue to grow.

A team from Bank of America Merrill Lynch contributed to the recent report. The team wrote that, “China is on the rise to become the world’s second largest economy. The working age population increased by 380 million from 1980 to 2015. The migration of workers from rural to urban areas and manufacturing jobs made China the world’s largest manufacturing economy in 2010. China’s working age population is expected to peak in 2017.”

However, “China’s overall population will decrease by 60 million by 2050, and its number of workers will decrease by one-third or 212 million. This is almost equivalent to the population of Brazil.”

This is particularly alarming. It means that it will be difficult to support China’s large retired population and continue human capital growth. This has become an issue in developed economies like Japan. China needs a larger young population of workers to support its huge senior population.

Source: QQ News

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