China appears to be at the edge of an historic demographic transition, setting the country on a path to grow old before it becomes prosperous. This paper presents a detailed picture of the current population dynamic and analyzes the implications for economic prospects. The results indicate that China is not yet at the stage of development where population changes matter a great deal for economic growth. But when that time comes, perhaps in a decade or so, demographic changes will have a profound influence not only on economic growth but on China's global competitiveness.
Population dynamics in general and aging in particular have become global economic issues. At a Federal Reserve Bank of Kansas City symposium on global demographic change, a paper presented by Bloom and Canning (2004), two researchers from the Harvard School of Public Health, offered a number of daunting facts. The segment of the global population that is age 60-and-older is rising sharply both in percentage terms and absolute numbers, with the expectation that it will surpass one billion within two decades. Moreover, the population age 80 and over is projected to increase at an annual rate of 3.4 percent from 2000 to 2050, corresponding to an increase from one percent to four percent of the global population.
This aging phenomenon, it is believed, will be most rapid in Western Europe, the United States, and Japan, Virtually all of the projected increase in world population through 2050 will occur among today's lower- and middle-income countries. China, however, might be one important exception.
As the world's most populous country, whose rapid economic growth and stellar foreign direct investment have turned it into an emerging economic superpower, China appears to be at the edge of its own historic population transition. As noted in a recent paper published by the Center for Strategic and International Studies (CSIS) in Washington, DC (Jackson and Howe, 2004), the United Nations (UN) projects that the share of China's population age 60-and-over will rise to 28 percent by 2040 from 11 percent in 2004. As the authors point out, by 2040, assuming current demographic trends continue, there will be 397 million Chinese citizens who are in the 60 and older age cohort, more than the total current populations of France, Germany, Italy, Japan, and the United Kingdom, combined.
A number of authors have commented on the Chinese demographic transition as it relates to pension policy. The CSIS study, for example, points out that without pension reform, China will "soon have tens of millions of indigent elders who lack nearby families, pensions, and access to health care" (Jackson and Howe, 2004, p. 27). But the more fundamental question, one that should be considered before any analysis of the pension issue, is the impact of the demographic dynamic on long-term economic growth. The economic growth impact of population changes can dramatically affect pension policy and pension financial status. Further, given China's widening income distribution and bleak job market, the consequences of a structural, long-term slowdown in economic...