A Shrinking Population Could be a Demographic Opportunity for China

By Lex Rieffel (India 1965-67), Founder of the From the Bridge Foundation; former U.S. Treasury Department economist and Brookings Institution scholar.

Co-author: WANG Xueqing, PhD candidate at Princeton University, Office of Population Research, focused on population aging and family change.

Original article: The Centre on Contemporary China and the World (CCCW) at the University of Hong Kong

In early 2023, China announced its first population decline since the Cultural Revolution, marking a significant milestone in its demographic history. This decline highlights a broader global trend toward decreasing fertility rates. According to the latest UN World Population Prospects report, issued in July 2024, the world’s population is expected to peak before the end of this century. The number of countries experiencing very low fertility rates has been steadily increasing. One in four people now live in a country whose population has already peaked. This includes nations as diverse as Germany, Japan, Korea, and Russia. China is far from being alone on this down-sloping demographic path.

The simple reason for China’s population decline is that each year there are more deaths than births and the difference is not being made up by immigration. The only credible way to stop the decline is to increase the number of births. Demographers have a useful measure for assessing fertility: the Total Fertility Rate (TFR). It is the number of children that women of childbearing age will have on average in their lifetime. A TFR of 2.1 is the “replacement level”, meaning that the country’s population will be stable over time. A TFR above 2.1 means that its population will grow and a TFR below 2.1 means that it will decline, all else equal. China’s TFR is now around 1.2, one of the lowest in the world. It is this low TFR that is driving the current decline in its population.

In the UN’s previous Prospects report, issued in 2022, China’s population was projected to fall from 1.4 billion to 770 million by 2100. This year’s report further lowers the projection to 633 million, less than half of China’s current population, clearly a number with deeply troubling, if not alarming, implications. It means that China is on track to experience the largest absolute population decrease in history for a single country: a projected loss of 204 million people between 2024 and 2054. By 2100, China could see its population drop further to a level last seen in the late 1950s.

There is an alternative view of China’s demographic future that views the population decline as an opportunity rather than a crisis, based on the potential of reversing the decline in its fertility rate and reaching a population level of around 1 billion in 2100. We illustrated this view in a graphic form that was published by Scientific American in May 2024 (See Figure 1, reproduced below). While acknowledging the valid concerns about the challenges posed by a shrinking population—such as supporting an aging population and maintaining economic growth—we also believe that with thoughtful and socially sensitive policies, China’s elderly can be adequately supported as this demographic shift occurs. Moreover, continued advancements in education and technology could enable China to sustain and even enhance its economic vitality. Ultimately, we suggest that a smaller population could contribute to a more prosperous and powerful China in the decades to come.

Figure 1. Reproduced from Lex Rieffel & Xueqing Wang, “China’s Population Could Shrink to Half by 2100,” Scientific American, May 1, 2024.

China’s pro-natalist population policy in the early Communist era shifted to a strict one-child policy in 1979 and then back to encouraging larger families in 2015. The government’s current policy is promoting more marriage and childbearing, although Chinese women in general are increasingly opting to remain single and not become mothers.

There are a multitude of reasons why women in China are having fewer children. Along with women in most countries around the world, Chinese women today are more educated and older when they get married. Perhaps more relevant is the cost of raising a child, which includes both the direct expenses and the opportunity cost for women who could advance their careers or pursue personal interests instead of having a baby. This trend is reinforced as more women get well-paying jobs and move into dynamic cities where cultural norms attach less importance to raising children.

The path for China to a population of around 1 billion in 2100 without experiencing social turmoil has two components. One is focused on the elderly bulge. The other is focused on women in their childbearing years.

The elderly bulge poses a challenge as it results in fewer young people in the labor force to support the pension system. One obvious policy adjustment is to raise the retirement age from the current age of 60 for men and 55 for women. These are early ages compared to countries like Germany, Japan, and Russia, where men and women retire at the age of 67 and 65 years, respectively. In July 2024, China’s Communist Party passed a resolution to gradually raise the retirement age over the next five years to around 65 years. When China’s retirement age reaches 65, the additional pension contributions will boost the economy by relieving pressure on the government budget.

China is establishing a nationwide social insurance system to provide pension and medical benefits for all citizens, aiming to address the growing social and economic inequality. While Eastern China and urban areas have better welfare coverage, the western provinces lag behind. To close this gap, China has introduced a universal non-contributory pension plan for unemployed urban workers and rural residents, supplementing the existing urban employee pension system.

Continuing to raise the productivity of the workforce will also make the elderly bulge less of a problem. Increasing productivity in the years ahead should not be hard to achieve in China because productivity has been rising swiftly for decades and the main sources of productivity gain—education and the movement of people from rural agriculture-based communities to urban industrial communities—have not been exhausted. The Chinese government has already begun adjusting policies in this direction. For example, the “hukou system” had previously been denying many social security benefits in urban areas to migrants from rural areas. Important steps have been taken in small and medium-sized cities that are now allowing rural migrants to enjoy equal benefits. This change is expected to boost economic growth by reducing barriers to free movement of the labor force.

Much of China’s productivity growth is associated with the shift from labor-intensive manufacturing to technology-intensive production. Over the past 15 years, China has aggressively advanced in technology, becoming the second-largest producer in knowledge- and technology-intensive industries, like AI and robotics, with output totaling $2.9 trillion in 2022—just $0.1 trillion behind the United States. This transformation will nourish a shift in the labor force toward jobs that require human empathy, creativity, and complex problem-solving—areas where machines cannot easily replace humans. One obvious area is child and elderly care.

The other component of the path to a more sustainable population in 2100 may be the bigger challenge: creating a social environment where more women will want to have children. Direct incentives like cash grants have had little success in raising birth rates in other countries, and the effect in China is unlikely to be different. Reducing the cost of childcare and housing are more likely to have a favorable impact. The fundamental challenge will be a social evolution that leads to women being valued as much as men both in family and professional settings. A related challenge is ensuring that university graduates will find decent jobs and face fewer obstacles to raising a family.

On a global scale, we suggest that every country should adopt population policies based on the concept of an “optimum population size” to be achieved in the medium or long term. This concept, which should be periodically reviewed and adjusted, could play a crucial role in achieving sustainable development everywhere. Smaller and more stable populations would do a lot to mitigate the global challenges of climate change and resource depletion. Countries transitioning to a smaller population can arrive at a more sustainable age structure — with the dependent population and the working age population becoming more balanced, as we have shown in the Scientific American story.

Consider the alternative scenario. The global population doubled over the past 50 years, growing from 4 billion in 1974 to 8 billion today. Now, imagine the population increasing by another 50 percent over the next 50 years, reaching 12 billion. With the increasingly visible effects of global warming, it seems unlikely that life on Planet Earth will improve with 12 billion people competing for food, water and space. Wouldn’t efforts to mitigate the impact of global warming be more effective if they were framed within the context of achieving an optimal global population size by 2075 or 2100, especially if the world could agree on a size below 8 billion? However, this must be done with great care to avoid infringing on individual rights or encouraging discriminatory practices.

China’s population is starting to decline, but letting it shrink to the UN forecast of 633 million in 2100 cannot—today—be a socially acceptable number. But this begs the highly contentious question of which smaller population size would be desirable and acceptable. It is important to remember that population decline is not a new issue in human history. Drawing the right lessons from the experience of China and other countries will be crucial in crafting policies that can transform today’s demographic challenge into an opportunity.

The path we see to a Chinese population of around 1 billion in 2100 is not easy and may be excessively optimistic. However, it’s important to remember that China has managed significant social change peacefully over the past 50 years, which suggests that further transformation could also be achievable in the coming decades. A key consideration for the government will be finding the right balance between driving change from the top down and fostering it organically from the bottom up. Fortunately, the policy adjustments needed to address the demographic challenges of a declining population can be introduced gradually. Countries in this position have decades to experiment and adapt as they iterate toward smaller and sustainable levels.