China demographic dividend seems to be over. We are now entering a turning point in which excessive labour from the agricultural sector is more or less absorbed into the modern industry, pushing wages up and requiring the economy to find new ways to boost productivity.
According to China’s National Bureau of Statistics, in 2015, the world’s second-largest economy recorded a sharp decline in working age in 2015, Wall Street Journal Reports. The 16-59 age group shrank by 4,87 million people to “barely” 911 million in 2015. At the same time, the rate of urban migration from the Chinese countryside is slowing down.
In 2013, the Chinese Academy of Social Sciences speculated that 2015 would indeed be China’s last year of the demographic dividend, Want China Times reported. It was thought that by 2030 China’s elderly dependent population will rival the working age population. However, an IMF report suggested China could reach that point as early as 2020.
Apparently, the recently abandoned one-child policy eroded the period of time that economists call the “demographic dividend.” Most emerging economies enjoy a generation (25 to 30 years) in which the working age population is well beyond the dependent population (elderly and children). For China, the dividend was smaller.
The demographic dividend is critical for consumer spending and demand in economies making the transition from an emerging to a developed economy. China is now facing a Japanese challenge, which goes hand-in-hand with decelerating growth.
In the short run, fewer Chinese immigrants from the countryside mean less of a pressure on the labour market. However, it also means wages must rise. The question is whether China is truly ready to abandon a low-cost, export-driven, manufacturing model. When wages rise, foreign direct investment in low-cost manufacturing is repatriated. The Economist reported on this Chinese “boomerang effect” in 2012.
Japan has tried to respond to the productivity crisis by becoming a leader in technological productivity gains like, for example, robotic manufacturing. Can China follow a similar path?