Demographic dividends

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China's workforce diminishes and the old-age dependency rate climbs in the next 20 years.

The demographic dividend (人口红利) is a window of opportunity in the development of a society or a nation that opens up as fertility rates decline, with faster rates of economic growth and human development becoming possible when combined with effective policies and markets.

As China's workforce diminishes and the old-age dependency rate climbs in the next twenty years, China's policymakers will need to determine how to retain the "demographic dividends" it has enjoyed for the last several decades.

Changes to China's working-age population

China's working-age population, that is people aged from 15 to 59, registered a rare and worrying decline in 2012, decreasing by 3.45 million to 937 million, according to the National Bureau of Statistics. The proportion of working adults compared to the total population shrank by 0.6 percentage points to 69.2 percent. This is worrying, as the NBS predicts last year's decline will continue to 2030.

China has been using its favorable population situation to its advantage for a long time. However, the China Development Research Foundation revealed that the working-age population in China would drop by 29 million. This decline will result in a high old age dependency ratio, which will be followed by disappearing demographic dividends.

Despite these statistics, the Ministry of Human Resources and Social Security said that the working-age population would still continue to rise in the near future, especially during the 12th Five-Year Plan period (2011-2015).

Mu Guangzong, professor of the Population Research Institute in Peking University, also discloses that despite its declining numbers, China's working-age population is still large. The country's current population advantage is some 937 million people, he said. It would be a misinterpretation to suggest the decline in the working-age population has passed the Lewis Turning Point, the time when all surplus rural labor has been transferred and absorbed by the economy.

Effects on China's economy

China's diminishing demographic dividends will have a significant impact on the country's economic growth. "Potential growth rates are decided by the input of the labor force, capital and improved production rates. The disappearing demographic dividend will significantly affect these three factors," said Cai Fang, a demographer and director of the Institute of Population and Labor Economics of the Chinese Academy of Social Sciences.

"In a word, economic growth in the future will slow down due to disappearing demographic dividends," Cai said. "China's economy boasted a growth rate of 10.5 percent in the 11th Five-Year Plan period (2006-2010), and we predict that it will drop to 7.19 percent in the 12th Five-Year Plan period and 6.08 in the 13th."

Countermeasures

"New demographic dividends, resource bonuses and dividends from reform are replacing the old dividends. The new demographic dividend is emerging, with China's technicians turning into senior technicians," said Li Yining, a renowned economist at the 12th China Economic Forum.

With the development of labor productivity, China may enjoy a longer period of demographic dividend through training laborers' vocational skills and improving the quality of the workforce, according to the Ministry of Human Resources and Social Security.

The family planning policy

China's family planning policy has not only reduced the working-age population and restrained the pace of sustainable economic growth, but it is also partly responsible for young laborers' poor teamwork and production capabilities, Mu said. The policy has caused great demographic risk and debts, and will lead to worse prospects if the situation remains unchanged.

"Any adjustment should include being open to a two-child policy," Cai Fang said.