Exploring the Impact of China’s Declining Population on Business Opportunities and Future Challenges
The demographic shift in China has become a cause of concern for policymakers. However, in the short term, the workforce remains sufficient, and new business opportunities are emerging in various sub-sectors.
Despite being the world’s most populous country, China has experienced a decline in population growth in recent years. Notably, in 2022, China saw its population shrink for the first time in six decades, which may signal the onset of a long-term downward trend with significant implications for the country’s economy and business environment. Among the primary concerns are the long-term effects of an aging population and a shrinking workforce on the economy. This article seeks to explore the extent of China’s population decline, potential economic implications of this demographic shift, and strategies that businesses can adopt to address the resulting challenges.
What is the Extent of China’s Population Decline?
In 2022, China’s population experienced a decline for the first time in six decades, with the overall population dropping from 1.4126 billion to 1.4118 billion, a decrease of 850,000 people, according to the National Bureau of Statistics (NBS). The reduction is attributed to a decreasing birth rate and a rapidly aging population. China’s national birth rate hit a record low in 2022, dropping to 6.77 births per 1,000 people, down from 7.52 in the previous year. Furthermore, the number of people aged over 60 increased from 267.36 million to 280.04 million. As a result of these demographic changes, China’s working-age population, which ranges between 16 and 59 years old, declined by 0.5% to 875.56 million by the end of 2022. The UN predicts that China’s population could fall to 1.313 billion by 2050 and could drop below 800 million by 2100.
What are the Causes of China’s Population Decline?
China’s declining population can be attributed to several factors, including the one-child policy implemented in 1979, which was strictly enforced until 2015. The policy aimed to curb population growth, but it resulted in a reduction in the number of births and an imbalance in gender ratios, leading to a decrease in the number of women of childbearing age. With the smaller size of this demographic and the rising costs of raising children, this trend is expected to continue and possibly intensify over the coming decade. Additionally, the country’s rapidly aging population is another contributing factor, as life expectancy has increased significantly in recent decades, resulting in a rising number of elderly individuals. It is projected that the population of individuals over 65 years old in China will double by 2050.
Efforts Made by the Chinese Government to Address the Population Decline
In an attempt to address the population decline and alleviate the associated socioeconomic challenges, China has introduced a series of measures aimed at promoting childbirth, as well as supporting childcare and eldercare.
Policy and Support Measures for Three-Child Families
China has gradually adopted pronatalist policies in recent years, with couples being allowed to have up to two children since 2016 and single-child families being permitted to have two children since 2013. More recently, on May 31, 2021, China announced the “three-child policy” to further encourage childbirth and address the country’s demographic imbalance.
To support the new policy, a range of measures have been introduced, including tax deductions, affordable childcare services, and the introduction of childcare leave. Local governments are also providing financial subsidies to eligible couples, with some offering up to RMB 19,000 (US$2,800) for having one to three children.
However, despite these measures, China’s population decline continues to be influenced by several factors such as high living costs, changing attitudes towards family and marriage, and the impact of the COVID-19 pandemic. It remains to be seen how effective these pronatalist policies will be in the long run.
Supporting the Aging Population in China: Eldercare Measures
The increasing proportion of elderly individuals in China’s population will have significant implications beyond economic factors, impacting the social fabric of Chinese society. Due to a longer life expectancy, elderly parents may require longer-term financial, emotional, and social support, often relying solely on their one child. This could create additional pressures for children who already face challenges juggling their careers, caring for their own children, and supporting their aging parents simultaneously. To address eldercare concerns, China has implemented various supporting measures, such as tax deductions, eldercare leave in select cities, and policies to promote the eldercare service industry. Most recently, on August 29, 2022, the National Development and Reform Commission (NDRC) and twelve other authorities jointly released several policy measures aimed at supporting the elderly care and childcare service industries to overcome current difficulties. These measures include policies that reduce costs for eldercare and childcare service providers, such as rent exemptions, tax and fee reductions, and financial support.
What is the significance of China’s population decline for businesses?
The implications of China’s ongoing demographic shift go beyond just social and cultural changes, as they can greatly affect the country’s economic growth. China’s previous rapid economic development was largely driven by the “demographic dividend” of having a large population of working-age citizens. The country’s shift away from an agrarian economy towards an industrial society with higher living standards and income levels was facilitated by its labor-intensive, export-led model. However, China’s demographic changes have raised concerns about its future labor force and market potential, which could impact its growth trajectory.
Can China face a shortage of labor force in the future?
A declining population can have a direct impact on human capital, resulting in fewer skilled workers, entrepreneurs, and innovators to drive economic growth. The aging workforce and a dwindling supply of younger workers due to the population decline can create labor shortages, making it harder for businesses to meet demand. Industries that rely heavily on physical labor, such as manufacturing and construction, are likely to be affected more severely than others. Additionally, a decline in the labor force could lead to an increase in labor costs, making it more challenging for Chinese companies to compete globally.
However, a significant labor shortage is not expected in the short term as China still has a large pool of workers in the workforce, estimated to be around 791 million in 2021. While certain parts of China have higher rates of unemployment or underemployment, suggesting a potential labor surplus, the national average of 5.5 percent unemployment in 2022 indicates that in the short term, China may not face a substantial labor shortage.
How could China’s population decline impact the domestic market?
The implications of a declining population may lead to a potential shrink in the Chinese market, resulting in fewer customers and a direct impact on its size. This could trigger a decline in demand for goods and services, adversely affecting the country’s business growth. The age structure effect suggests that an aging society may also lead to a reduction in consumer expenditure, as the elderly are less likely to spend than the younger generation. However, the size of the market is dependent on multiple factors, including economic growth, consumer spending, and the adaptability of businesses to changing market conditions. On the bright side, a smaller population size may enhance per capita income, reduce unemployment rates, and increase disposable income, promoting a robust domestic market. Additionally, the Chinese government has directed the economy towards the domestic market by implementing the dual circulation strategy and investing in higher-value-added products. With efforts to expand the domestic market and overseas consumption, China’s per capita income is six times lower than that of the US, leaving significant potential for economic activity, household wealth, and domestic consumption levels to continue growing.
Can China’s changing demographics bring new business prospects?
Although a declining population presents significant challenges, it may also create new opportunities for businesses that are willing to adapt to changing social trends. Seizing these opportunities will be crucial for ensuring a prosperous and sustainable future.
Healthcare, eldercare, and the silver economy may be potential growth areas in light of China’s aging population
As China’s population ages, there will be a growing demand for healthcare, eldercare services, and associated products, which will require substantial investments. Healthcare has been one of the top priority investment areas for the Chinese government, especially after the COVID-19 pandemic exposed gaps in the system. The aging population adds more pressure to improve service provisions in this sector.
China’s National Bureau of Statistics reported that the proportion of the population aged 60 and over reached 18.7 percent in 2020 and is projected to rise to 34.9 percent by 2050. Wealthy working-age adults may increasingly rely on private sector services, such as long-term care facilities, to care for their elderly relatives due to limitations in the public healthcare system. Besides eldercare services, the aging population will require more pharmaceuticals, medical devices, and disability aids.
The value of China’s eldercare market is expected to reach US$3 trillion by 2030, highlighting the potential growth and opportunities for businesses in this sector.
Impact of China’s demographic shift on higher education and vocational training
Investment and growth opportunities arise from the importance of education in Chinese culture and the popularity of higher education. In 2020, the proportion of China’s population aged 14 years or younger increased to 17.95%, indicating potential growth in multiple areas such as education, entertainment, and consumer goods. The expanding middle class in China is driving the demand for education services as they aspire for upward mobility and better job opportunities.
However, China is facing a shortage of highly skilled workers, particularly in technology, healthcare, and engineering sectors due to a combination of factors, including the declining population, young people’s preference for non-manufacturing jobs, and growing demand for skilled workers in these industries. While the education industry in China is becoming restrictive to private investment, vocational education continues to be encouraged by the government, with a focus on upskilling the workforce to ensure continued economic growth. Therefore, it is advisable to explore talent-based and higher-tech opportunities in the China market.
Strategies for Businesses to Anticipate Future Challenges
As the population in China declines, businesses will face several long-term challenges, such as a shortage of labor, rising labor costs, and a smaller consumer base. To prepare for these challenges, companies will need to be proactive, innovative, and adaptable. Here are some strategies that businesses can consider:
- Invest in automation and technology: With a shrinking workforce, companies may need to invest in automation and technology to compensate for the labor shortage. This will require investment in research and development, as well as training for employees to operate and maintain new technologies.
- Invest in employee training and development: To remain competitive, companies will need to invest in the training and development of their employees. This will help build a skilled and adaptable workforce capable of adapting to changing market conditions.
- Diversify products and services: With a shrinking consumer market, companies may need to diversify their products and services to appeal to a wider range of consumers. This could mean expanding into new markets, developing new products, or adapting existing products to meet changing market demands.
- Offer flexible work arrangements: To attract and retain workers in a competitive labor market, companies may need to offer flexible work arrangements, such as telecommuting, flexible hours, and remote work options.
- Develop strong local partnerships: Foreign companies in China can benefit from developing strong partnerships with local companies and organizations, which can provide access to local knowledge and resources.
To succeed in this changing landscape, companies need to be flexible, innovative, and proactive in their approach to the market. By investing in automation and technology, employee training and development, diversification, flexible work arrangements, and local partnerships, businesses can prepare for future challenges and ensure their long-term growth and success.
Key Takeaways: Understanding the Impact of China’s Demographic Shift on Business Opportunities and Challenges
China’s decreasing population could have significant consequences for the economy, including increased social security expenses, slower economic growth, and a lack of skilled labor. It remains to be seen how the Chinese government will address these challenges and whether its policies can alleviate these issues to ensure the country’s competitiveness in the global economy.
Despite the challenges posed by the declining population, there are also opportunities in areas such as education, healthcare, innovation, and technology, which are expected to be further encouraged by the Chinese government. Investors should closely monitor regulatory and market trends in these areas.
This article is based on the original article by Yi Wu
This article first appeared on china-briefing.com, Dezan Shira & Associates
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