Beyond demographics is destiny: understanding economic mitigation strategies for demographic change in China

Abstract

The favorable demographics that have contributed to China’s rapid economic growth are changing. China’s working-age population is currently peaking and within two decades its overall population will begin to shrink. In addition to a shrinking working-age population, China will see an increase in the elderly population and a rising dependency ratio. This demographic change may have an economically significant impact. If China’s enormous stock of labor and low dependency ratio were key elements in its rapid economic growth, then some economists conclude that the reversal of these elements will have detrimental effects on the Chinese economy. This thesis examines this argument by examining how Germany, Japan, and Russia have already faced and attempted to mitigate similar demographic changes, and assesses China’s potential mitigation strategies in this light. For each country, the thesis examines two economically significant demographic changes—decreasing working-age population and rising dependency ratio—and then examines how strategies to maximize labor force participation, increase productivity, and control old age benefits can potentially mitigate their effects. The comparison of China with Germany, Japan, and Russia leads to the conclusion that China is poorly prepared to mitigate the economic effects of its coming demographic change.