China's demographic tea leaves

Its economic problems due to ageing, low birth rate, and poor gender ratios should serve as a wake-up call for India

A few days ago, Chinese social media published pictures of empty apartment blocks being demolished. It was yet another data point that indicated how badly China was out of step with the global economy.

While every other major economy is struggling to contain inflation, China is trying to induce it with its price index at near-zero. The real estate sector contributes around 30 per cent to the People’s Republic of China’s gross domestic product. If it goes into collapse, highly indebted giant developers like Evergrande could cause global knock-on effects. 

Beyond the proximate causes of the current situation, China faces the grim challenge of demographics. It has an ageing population, a low birth rate, and poor gender ratios.

Japan went into a similar loop in the 1990s, leading to three decades of stagnation. But the sheer scale of China means that the impact on the world could be much larger.

Japan (a long-lived nation) has had a stable population of about 125 million since the 1990s. The workforce has also remained stable at around 69 million, though it’s become older and less productive over time. Japan contributes around 3.7 per cent to global GDP in purchasing power parity (PPP) terms.

China has a population of 1.4 billion and a workforce of around 750 million. It contributes approximately 19 per cent to global GDP in PPP terms.

Unlike Japan’s stagnation, China is expected to lose 50 million people due to ageing in the next 10 years, and around 100 million per decade from 2050. The workforce is expected to shrink equally sharply.

China has been an upper middle-income country for well over a decade. But it may not be able to break out to upper income because it’s growing old.

There are lessons here for India. India contributes around 7.5 per cent of global GDP in PPP terms. It has significantly lower workforce participation compared to China, primarily due to poor female participation.  India has around 30 per cent female labour participation, while China has 75 per cent. 

The average Chinese worker has 14 years of education. Most Indian workers have less than eight years. Skilling up is hard given that background, and without skills, India can’t move up the income ladder. 

India also has a poor gender ratio and falling birth rates. The more educated parts of the country have seen total fertility rates dropping below the replacement rate. India will also go through the challenges of an ageing population and shrinking workforce.

India started liberalisation around 12 years after China. In 1979, when China opened up, it actually had a lower per capita income than India. Now, China has an economy that is 2.5 to five times larger, depending on how you calculate it.

China did have two key advantages however. It was 65 per cent literate in 1979, and there were no social barriers that made it hard for women to work. India was only 48 per cent literate in 1991, when it started to liberalise, and it does have regressive attitudes towards working women. 

The process of educating a population is generational. Tackling social attitudes that favour boys over girls and believe in keeping girls at home is even more difficult.  India appears to have failed at both.  Literacy rates were only 74 per cent in 2011, and female workforce participation has dropped since Covid. In effect, India has wasted its demographic dividend.

It is highly unlikely that policymakers could make an about-turn to push up literacy rates and keep young people in school and college for an extra three-four years. When it comes to female workforce participation, it looks as though sociologists don’t know where to even begin.

How China attempts to deal with its ageing issues will provide a template for India to address its own problems. If India cannot find solutions or at least mitigate the issues, it will head into socioeconomic stagnation or collapse.