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Bank of China: Economic Slowdown in the Next 30 Years Due to Demographic Transition

The Bank of China, the central bank of the Chinese Communist Party (CCP), recently published a paper dated March 26, 2021. The paper warned that the aging population and declining birthrate are more severe in China than in developed countries and that China will face far more severe challenges for a long time into the future.

China’s economic growth will slow down.

First, there will be a reduction in the working population. China’s economic growth has been under the reform and opening up of production.  A demographic dividend transformed China’s economic growth. Since 2010, the Chinese economy has entered a new norm with declining potential output, directly caused by the decline in the labor force. It is estimated that from 2020 to 2050, the working population will decrease year by year at a rate of more than 0.5 percent and by 2050 it will have dropped by 15.2 percent compared to 2019. In 2010 the working population was 74.5 percent of the total population By 2019, it fell to 70.6 percent. It will be 64.6 percent by 2035 and 59.8 percent by 2050.

Second, the burden of elderly care is growing. The elderly dependency ratio, the ratio of the elderly population (ages 65+) per 100 people of working age (ages 15-64), will reach 36 percent. It was 17.8 percent in 2019 and is expected to be 32.0 percent and 43.6 percent by 2035 and 2050, respectively. If calculated based on retirement at the age of 60 (that is, no delay in retirement), the elderly dependency ratio will rise to 49.8 percent and 67.6 percent, respectively. It means one worker will need to support 0.5 and 0.7 elderly, respectively. Further, government pension expenditures as a proportion of GDP have risen rapidly. They were at 5.3 percent in 2019, an increase of 4.5 percentage points from 1990. As the old-age dependency ratio increases in the future, this expenditure will continue to rise.

Third, China will face low growth, low-interest rates, low inflation, and high debt. China’s demographic transition means that more people are consuming and fewer people are producing, which leads to economic stagnation, weak consumer prices, and declining asset prices. It will be very similar to the current situation of low growth, low-interest rates, low inflation, and high debt in Japan, Italy, and other countries. Moreover, the situation in China may be more difficult because of the faster population transition, with a growing aging population and declining birthrate.

The central bank paper said, “The economic gap with the United States will continue.”

The paper continued, pointing out that while China is facing the acceleration of its aging population and a declining birth rate, the U.S. population is undergoing favorable changes due to immigration and other reasons.

While the population in China is declining, the United States’ population is increasing. The United Nations predicts that, by the year 2050, the United States’ population will increase by 50 million, compared to 2019, an increase of 15 percent, while China will decrease by approximately 32 million in the same period, a decrease of 2.2 percent.

Fourth, China’s working population has been decreasing while the U.S. working population has been increasing. It is estimated that in 2035 and 2050, the size of China’s working population will drop by 4.6 percent and 15.2 percent from 2019, while the United States will grow by 2.4 percent and 7.7 percent, respectively, for the same periods. In terms of the ratio between the working population and the total population, China and the United States were 70.6 percent and 65.2 percent, respectively, in 2019. China will be 5.4 percentage points higher than that of the United States; in 2035, the gap will be reduced to 3.2 percentage points; in 2050, China will be lower than the United States by 1.3 percentage points.

Fifth, China’s elderly care burden is increasing faster than that of the United States. In 2019, China’s elderly dependency ratio was 17.8 percent and the United States was 24.8 percent, and China was seven percentage points lower than the United States. In 2035, the two countries will be basically the same. In 2050, China will be seven percentage points higher than the United States.

Sixth, China’s population structure will be very different from that of the United States. By 2050, China’s population distribution will be narrower at the bottom with fewer children and a shrinking working population in the middle, but wider at the top with a larger elderly population. For the United States, the bottom and middle of its population structure will be much wider, showing more young people and more working-age people. The top will be narrower, showing a smaller elderly population.

The central bank paper asked, “If, in the past 40 years, China had been able to narrow the economic gap with the United States by relying on cheap labor and substantial demographic dividends, then what would China rely on in the next 30 years?”


1. Bank of China, March 26, 2021

2., April 14, 2021