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China s Potential growth may slow later in decade - Older population shrinks its labor force

( From China Economic Review,​ China Daily, National Bureau of Statistics of China, Bloomberg, CNBC, The Gardian )

Let s start with some statistics from the National Bureau of Statistics of China :



By the end of 2012, the total population of mainland China was 1,354.04 million (including population of 31 provinces, municipalities and autonomous regions, and servicemen in CPLA; but not including residents in Hong Kong SAR, Macao SAR, Taiwan Province and overseas Chinese), an increase of 6.69 million over that at the end of 2011. The number of births was 16.35 million and the birth rate was 12.1 in a thousand, or 0.17 thousand point higher than that in the previous year; the deaths were 9.66 million with a death rate of 7.15 in a thousand, or 0.01 thousand point higher; the natural growth rate was 4.95 in a thousand, or 0.16 thousand point higher. In terms of gender, the male population was 693.95 million, and female population was 660.09 million; the sex ratio of total population was 105.13 (the female is 100, male to female), down by 0.05 compared with that at the end of the previous year; the sex ratio at birth was 117.70, which was 0.08 lower than that at the end of previous year.



​​ Population aged 60 and over was 193.9 million, which was 14.3 percent of the total population, or 0.59 percentage point higher than that at the end of previous year; population aged 65 and over was 127.14 million, accounting for 9.4 percent of the total population, or 0.27 percentage point higher; population at the working age of 15-59 was 937.27 million, a decrease of 3.45 million, and it accounted for 69.2 percent of the total population, or 0.6 percentage point lower.



​​ In terms of urban-rural structure, urban population was 711.82 million, an increase of 21.03 million over the previous year; and the rural population was 642.22 million, a decrease of 14.34 million. The proportion of urban population to total population was 52.57 percent, which was 1.3 percentage points higher than that at the end of the previous year. The population who reside in street communities with permanent household registration elsewhere and having been away from that place for more than 6 months reached 279 million, which was 7.89 million more than that in the previous year. Specifically, the migrant population was 236 million, or 6.69 million more. At the end of the year, the total number of employed persons was 767.04 million, or 2.84 million more than that at the end of 2011; the number of urban employed persons was 371.02 million, or 11.88 million more.















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As shown in the graph below, a big shift will occur within the next 15 years and limit the number of people forming the labor pool.

China Signals Shrinking Pool of Workers Will Limit Recovery

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China's potential growth rate may slow by 1 percentage point in the second half of the decade as its labor force shrinks, according to a senior demographics adviser to the nation's leadership.



The annual rate will drop to 6.1 percent in 2016-20 from 7.2 percent in 2011-15 and actual 11.2 percent growth from 2006 to 2010, said Cai Fang, head of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences.



Speaking at a forum in Beijing on Monday, Cai explained potential growth is commonly known as a speed limit, or the maximum pace at which an economy can expand without stoking inflation.



Cai said the size of China's labor force peaked in 2010, putting the country in a situation similar to that of late 20th-century Japan, where growth slowed once the workforce began shrinking.

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“A declining labor force is just one of several economic headwinds looming on the horizon,” said David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department, now an Asia analyst in Los Angeles at TCW Group Inc. “As Xi and Li assemble their economic teams, we’ll find out whether necessity will again be the mother of reforms, as it has been in the past.”



​​“In the past people always believed 8 percent or even 10 percent is necessary for China to maintain high employment and prevent mass unemployment, but demographic change is making the requirement for growth much lower,” said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. “Potential economic growth in China will slow to around 6 percent by 2020.”

China s growth potential will be impaired by the shrinking pool of avalaible workers



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​China’s growth rebound will be capped by a labor-force squeeze and shrinking resources that leave the government satisfied with rates of expansion as low as half the peak during the past decade.

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A pace of 7 percent to 8 percent reflects economic forces, Ma Jiantang, head of the National Bureau of Statistics, said on Jan. 18 after reporting 7.9 percent expansion in the fourth quarter from a year earlier. He said a decline last year in the working-age population was of “great importance.”

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China's economic miracle has been fuelled by its "demographic dividend": an unusually high proportion of working age citizens. That population bulge is becoming a problem as it ages. In 2000 there were six workers for every over-60. By 2030, there will be barely two.



Other countries are also ageing and have far lower birth rates. But China is the first to face the issue before it has developed – and the shift is two to three times as fast.



"China is unique: she is getting older before she has got rich," said Wang Dewen, of the World Bank's China social protection team.



Tens of millions of workers have migrated to the cities, creating an even worse imbalance in rural areas which already suffer low incomes, poor public services and minimal social security.

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​​Wang Feng thinks China has been far too timid, storing up trouble for the future. "Leaders have ridden the economic boom and largely collected and spent money and built infrastructure – the hardware: railroads, bridges," he said.



"[In future] they will not have the money to spend, but what is more challenging is the part policymakers have stayed away from: building software – the pensions and healthcare system. That will be critical to social stability and regime legitimacy, but it is much harder to do."



Officials have been keen to promote such ideals – some have even pushed for laws ordering children to visit regularly – and not just for economic reasons, Liu argued. They see it as helping to preserve stability and social co-operation.

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