China's Demographic Challenge: Ageing population threatens economic shift & growth

China faces a formidable economic challenge as its ageing population threatens key policy goals, including boosting domestic consumption and tackling growing debt.

According to Reuters, a record low birth rate in 2023 and the impact of COVID-19 deaths have resulted in a second consecutive year of population decline, raising concerns about the country's long-term growth prospects.

The decline in the working-age population will exacerbate structural imbalances, impacting household consumption and straining pension and elderly care systems. This situation poses a significant hurdle to China's economic objectives for the coming decade.

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China's household consumption already constitutes one of the lowest proportions of economic output globally. Policymakers are grappling with the prospect of large segments of the population exiting the labour pool, entering retirement, and surpassing a prime period for consumption.

About 300 million people, the country's largest demographic group aged 50 to 60, equivalent to the entire US population, are expected to leave the workforce in the next decade.

This comes at a time when pension budgets are already stretched, with the Chinese Academy of Sciences predicting the pension system running out of money by 2035.

China's retirement age, among the world's lowest, raises concerns about the financial preparedness of those entering retirement. People are expressing worries about relying solely on pension income.

As China experiences rapid urbanisation, traditional expectations of children financially supporting aging parents are shifting. The demographic shift will reduce the ratio of workers supporting retirees, intensifying China's pension crisis. Demographers warn that by 2050, this crisis could become a humanitarian catastrophe.

The ageing population not only affects the pension system but also has broader economic implications. China's second-largest demographic group, aged 30 to 49, currently in a prime consumption period, is expected to participate less in domestic consumption as they age.

The subsequent generation, in their 20s, is the smallest since the 1950s due to China's one-child policy. This demographic trend poses challenges to sectors like real estate, which accounted for a significant portion of China's economic output.

As demand for housing declines, China's reliance on exports may increase, affecting innovation and productivity improvement.

(With inputs from Reuters)