Shrinking Workforce Underlies Family Planning Issues

China’s National Bureau of Statistics announced last Friday that the working age population decreased by 3.45 million in 2012, according to The People’s Daily:

It is first time the country has recorded an absolute drop in the working-age population in “a considerable period of time”, said Ma Jiantang, NBS director, at a press conference.

“We need to pay serious attention to this,” he said. He believes the causes lie in China’s changing fertility rate.

The working-age population, which covers ages between 15 and 59, accounted for 69.2 percent of the country’s total population in 2012, down 0.6 percentage points from 2011, the year in which the rate for the first time declined, said Ma.

Ma said he expects China’s working-age population to decrease “steadily and gradually” over a long period or “at least before 2030.”

While 2012 marked the first time China saw an absolute drop in its working age population, the percentage of Chinese who are of working age began to decline in 2011. The Economist explores why the data has defied official projections, which called for the Chinese workforce to keep growing until the mid-2020s:

I’m not sure why demographers got it wrong. Predicting future rates of longevity and especially fertility is undeniably hard. But surely it isn’t that difficult to figure out how many people aged seven today will become 15 (and thus of working age) in eight years’ time. Therefore, it shouldn’t be that hard to predict the near future of the working-age population. Perhaps the difficulty lies not with prediction so much as measurement. As I understand it, the yearly estimates of China’s population are based on an annual national survey of about 1.5m people. Given the size of China’s population, it would be easy to miscalculate the numbers by a few million here or there. Such errors could easily throw a projection out by a few years.

Also worth bearing in mind is the definition of working age. In last year’s press release, working age was defined as 15-64 years old. That is a common age range used by the UN’s Population Division and China’s own Statistical Yearbook. But for the purposes of Friday’s press conference, the NBS changed the definition, referring instead to 15-59 year olds. The number of Chinese in this age group declined by 3.45m, it reported (see chart). But the number of people aged 15-64 seems to be increasing still. It rose to 1.004 billion in 2012 (I inferred this total based on other numbers provided in the press conference).

But it’s interesting that the NBS chose to rejig the definition of working age for this press conference. One can only assume they chose the 15-59 age group precisely because its numbers are already declining. That allowed them to highlight a worrying demographic trend. In response to a reporter’s question, Ma Jiantang, the head of the NBS, said he did not want the population figures to be lost in the sea of data.

Many have pointed to China’s controversial one-child policy to explain the worrying demographic shift, as the population ages and the number of young workers shrinks. The South China Morning Post’s Wang Xiangwei writes that Ma’s comments “will no doubt ignite a new round of debate” about reforming China’s family planning laws:

The fact that Ma is a high-ranking official should further bolster the calls for change by opponents of the policy, by showing that support for change is also growing within the Communist Party leadership.

It is interesting to note that Ma voiced his concerns just two days after the National Population and Family Planning Commission held its annual conference, in which officials vowed to unswervingly uphold family planning as a long-term fundamental national policy. The statement released after the conference suggested that the central government doesn’t have any immediate plans to relax the policy.

That is too bad.

It is high time for mainland leaders to heed Ma’s call and set up task forces to study how to further relax the rigid family-planning policy in the short term, such as by changing it to a “two-child” policy.

Social policy aside, the aging workforce has implications for the Chinese economy. As Jamal Anderlini and Ed Crooks of The Financial Times wrote Friday, it “could become a big drag on future growth:”

As societies become richer, birth rates tend to decline naturally – but in China that trend has been deeply distorted by the country’s controversial one-child policy introduced in the late 1970s. “Most projections . . . estimated that the decline in the working age population would start around the middle of this decade,” said Frederic Neumann, co-head of economics at HSBC. “But [Friday’s numbers] show it has already happened, which suggests the decline over the next few decades will be faster than expected.”

The labor shortage is “bad news” for China’s economy in the short-term, writes Panos Mouroukoutas in Forbes, though it will force Chinese companies to innovate in the long-term. Gordon Chang, however, suggests that the bad effects outweigh the good:

Perhaps the most pernicious economic effect of a declining population will be on urbanization. The decades-old migration from farm to city is one of China’s “four new modernizations,” announced in mid-November by Li Keqiang. The man slated to become the next premier is placing a big bet that this trend will drive growth for the next two decades. After all, the Chinese government in 2011 announced it will be building 20 cities a year in each of the next 20 years.

Figures from the National Bureau of Statistics indicate that the government’s city-building plan is feasible. Last year, according to the agency, China’s urban population increased 21.03 million, hitting 711.82 million, or 52.57% of the country’s population. That was up 1.3 percentage points from 2011.

Even if these figures are correct—and there is growing doubt that NBS’s urbanization numbers are accurate—it’s not clear where Beijing officials are going to get the people to continue to power the farm-to-city process. Not only are the major demographic trends working against them, but there is also a growing concern that rural areas have already been emptied out.