THESIS STATEMENT
How new trends in population/demography affect China’s economic growth
INTRODUCTION
China’s economy is of the largest economies in the world. The size, of China’s economy, has grown evidently after the collapse of the Soviet Union (in the late 80s). From the systematic scrutiny of literature, about the expansion of China’s economy, we learn that the reforms introduced by Deng Xiaoping played a major role in the growth and modernization of China’s economy. Deng Xiaoping’s economic reforms 1) introduced controlled market system, 2 allowed foreign goods to penetrate local markets and 3) permitted foreign investors to invest in particular sectors of the economy (Attané and Gu).
However, the reforms did not bring change immediately; in fact, the new policy started to produce results in the early 90s. It was the period, during which China’s economy started to grow at an unusual pace. Most of the investment landed in the manufacturing sector, as the cost of manufacturing, product, in the labor-intensive economy, was very low. From the early 1990s to 2007, investment in various sectors of China’s economy grew at an abnormal rate, which 1) swelled the size of the economy and 2) increased employment level. The western port cities of China benefitted most from the economic growth (Peng).
Local and international investors preferred China’s economy because of its low-cost industries. As China was a labor-intensive economy; therefore, the cost of production was low, which prompted many companies/firms of Western origin to invest in China’s economy.
It suggests that abundance of labor was the competitive advantage of China, which kept nominal/real wages stable and the cost of production low for a very long period. However, as the new changes, about demography, started to appear, competitive advantage, of China’s, economy started to deteriorate. It made economists anxious and provoked study of identifying and studying new trends in the economy. Studies suggest that these recent demographic trends are shaping economic and social realities in China (Chow).
CHINA’S ECONOMY
In this section of the economy, we will study China’s economy in detail. The focus will be 1) size of China’s economy, 2) size of trade and 3) size of exports. Also, we will also discuss the size of a labor force of China, which gives China’s economy its competitive advantage against its rival economies.
Size of Economy
In the year 1990, size of China’s GDP was the $360.9 billion (in dollars), whereas the size of United States’ GDP was 5.98 trillion dollars. Statistics reveal China’s economy started to swell at exceptional from the mid-90s and in the year 2016, the size of China’s economy was $11.2 trillion, only $7 trillion smaller than the United States’ economy. This information makes it quite apparent that in 21 years, China became the second largest economy in the world, which affected its economic, social, and political realities. During this period, various sectors, of China’s economy, evolved to the point where they could rival sectors of industrialized or developed countries (China Development Research Foundation).
Size of Trade
Statistics show that China imported goods and services of $1,587,920,688.16 (in thousands) in 2016, whereas it exported goods and services of $2,097,637,171.90 (in thousands). Imports, of China, make 17.42% of GDP, whereas the exports make 19.64% of GDP. From the information, it is quite apparent that trade strongly affects China’s economy, which is why China’s central government is quite sensitive about the trade issue.
China’s major trade partner is the United States. As per 2016 statistics, the size of the trade, between the United States and China, is $578.2 billion. China exported goods worth $462.6 billion, whereas China imported goods and services (from China) worth $115.6 billion (China Development Research Foundation).
Size of Exports and Its Relevance
China’s size of exports has swelled over the years. However, exports from certain sectors of economy dominate the trade. Studies infer that in recent years, China has relied heavily on its exports to expand the size of its economy. The 2007 economic recession, dubbed as The Great Recession, badly jolted exports and thus China’s economic growth. Since then, rely on exports to realize various political-economic objectives have decreased, and focus has shifted towards consumption, which is considered an engine of economic growth. In the year 2016, the size of exports was $2,097,637,171.90 (in thousands), which was higher than imports (trade surplus) (China Development Research Foundation).
Competitive Advantage
The methodical study, of China’s economy, makes it evident that the labor-intensive nature or characteristic of the economy gives it the competitive advantage. The size of the labor force, of China, is the largest in the world, which keeps the nominal and real wages stable. It is true that over the years, wages in different sectors, of China’s economy, have grown; however, this overall increase in wage has not increased the cost of production. As the cost of production, in China, has remained quite stable over the years; therefore, the competitive advantage, of producing products and services at a lower rate, has remained intact. However, as new trends in demography are appearing or occurring, competitive Advantage is also being affected (Fang).
CHANGES IN DEMOGRAPHICS
Demography can be described as statistics that pertain to the human population, such as births, deaths, and size/aging of various segments of the population. Studies infer those changes in demography occur because of various reasons. Most of times the reasons are natural, such economic and social evolutions; however, sometimes the causes are synthetic (war, government policy, etc.) (Peng).
The study, of China’s history, reveals that the central government in China was quite apprehensive of China’s population, as it considered its population an obstacle in realizing political-economic objectives. Therefore, China’s central government devised the policy of One Child, which intended to reduce population size. However, the policy also had several unintended consequences, which are now affecting China’s economy. As per projections, new demographic trends may reduce the competitive advantage of China’s economy (of producing inexpensive products and services) (Tian).
This academic exercise intends to identify, isolate, and study various demographic trends to understand their impact on China’s economy and its competitive advantage against other economies. More accurate the information regarding these trends, more precise and accurate the projections, about the impact of these new demographic trends, on the economy (Li, Li and Wu).
NEW TRENDS ABOUT DEMOGRAPHY
Study of literature, about new demographic trends in China, reveals that some demographic trends are more relevant and they strongly influence economy than the other demographic trends. For instance, the decline in population growth strongly and directly affects the economy. Similarly, gender imbalance affects not only the economy but also society.
Population growth-rate
According to National Bureau of Statistics, the birth rate in China declined to 1.243% from 1.295%. The information suggests that shortly, China may experience negative population growth (depopulation). Currently, China is experiencing a decline in birth; however, the trend suggests that in the next couple of decades, depopulation may occur. Japan and South Korean’s population are experiencing depopulation, which suggests that the probability of depopulation (in China) is highly probable. Studies infer that there are several causes of the decline in population; some are associated with culture and preference and others are associated with government policies (Eggleston, Oi and Rozelle).
Sex Ratio (Gender Imbalance)
China itself acknowledges that gender imbalance, in the Chinese population, is most serious and most prolonged in the world. According to the statistics, around 118 boys are born for every 100 girls, which is slightly higher than the global average (103 boys to 107 girls). According to the projections, if the gender imbalance aggravated, the imbalance would adversely affect demographics. It would yield various kinds of economic and social challenges, which would force the Chinese government to take extraordinary measures (China Development Research Foundation).
Ageing Population
Evidence, about the aging of China’s population, suggests the Chinese population is getting older faster than anywhere in the world. If the population continues to age at the same pace, by 2050, dependency ratio, for the retirees, would swell to 44%. The dependency ratio is an indicator, which compares the difference between those, who are working, and those, who are not in labor force anymore (Guo). It suggests that China’s labor force is going to shrink, which will shift the labor curve to the left, causing an increase in wages and reduction in employment. Reports also reveal that the Chinese government does not have an effective system to provide financial and health security for all. We also learn that the retirees would be a prolonged concern for the Chinese government and it would compel the system to devise a strategy to address this concern (Cai).
CAUSES OF CHANGES IN DEMOGRAPHY
New demographic trends, which have been identified based on their relevance, are the product of various causes. It is apparent that several factors give birth to new demographic trends; therefore, it is not simple to address and influence these trends.
Causes of Decline in Population Growth
Most of the studies infer that China’s One Child Policy is the cause of the decline in population. One Child Policy has many intentional and unintentional consequences. For instance, not only One Child Policy directly reduced number of births, but also affected fertility culture, number of marriages and the average number of boys to girls.
The cultural causes, in decline of population, are late marriages and preference for One Child. Most of the parents are themselves only Child of their parents; therefore, they prefer either one child or no child (Cai).
As the economy has changed, so does the composition or constitution of the labor force (more women are actively seeking employment), which has affected China’s culture. Women and men are marrying in their late 20s and early 30s, which reduces chances of having a child.
Changes in culture and physical environment are primarily causing the decline in fertility of Chinese men. As infertility in rate is rising, we are witnessing a decline in population growth, which is a serious concern for the government. The infertility rate (among the childbearing population) has grown 15%, which was only 3% three decades ago. Some studies suggest that pollution could because of growing infertility rates among men; whereas some studies suggest that changes in eating habits could be the cause (China Development Research Foundation).
Statistics also show that despite changes in One Child Policy, the birthrate in China is 1.57 children per woman, when it was 6.32 children per woman in 1967 (China Development Research Foundation).
Causes of Gender Imbalance
Disturbance in sex ratio or gender imbalance is caused partly by One Child Policy and partly by bias for a male child in China’s society. According to a report, many parents destroy a fetus when they learn that it is a female fetus. Such cultural bias for male children has seriously disturbed sex ratio in China’s society. Some studies claim that there could be biological causes too, of gender imbalance, in China’s society. However, the majority of the studies claim that since the introduction of ultrasound technology, in China, the imbalance about gender has only aggravated (Li, Li and Wu).
Causes of Growing Ageing Population
There are two primary causes of the growth of the aging population segment. One of the two primary causes is a decline in birth rate, which has naturally increased the size of the aging population segment in comparison to the past. The other primary reason is the increase in average lifespan. In the last five decades, medical technology has advanced at an unprecedented rate, which has directly and positively affected average life expectancy. Also, people have become quite conscious regarding their health, which has also positively affected average life expectancy (Eggleston, Oi and Rozelle).
ECONOMIC IMPLICATIONS OF THE CHANGES IN DEMOGRAPHY
Implications of Decline in population
It is quite evident from the study that inexpensive labor of China keeps the cost of production low, which gives a competitive advantage to Chinese products in international markets. However, as the population growth is on the decline, the labor supply curve is slightly sliding towards the left, which may increase wages/cost-of-production and reduce output. Also, depopulation may give birth to an economic phenomenon called middle-income trap, where a country is struck at the particular income level. Such development adversely affects economic growth and prosperity (Fang).
Implications of Gender Imbalance
Gender imbalance affects the constitution of the labor force, which then affects industrial production and evolution. For instance, in most of the heavy industries, around the world, men are employed. However, in the corporate sector, women work/participate in considerable number. As the composition of the labor force will change, so does the capacity and efficiency of Industrial and Corporate sectors of the economy. Therefore, gender imbalance will introduce various kinds of changes to the Chinese economy (Chow).
Implications of growing Ageing Population
When the number of people, who do not constitute labor force, grows, economic growth slows down. It is because the size of the labor force has reduced, which affects the general output and cost of production. For labor-intensive economy, of China, the increase in the size of the aging population is worrisome, as its competitive advantage is based on its labor force (in abundance and inexpensive).
CONCLUSION
In the end, it is evident that China’s economy will be affected by new demographic trends. The majority of the studies suggest that new demographic trends are worrisome and they will affect 1) economic growth, 2) nominal/real income, 3) level of output, 4) social-security plan and healthcare system. However, no study can precisely project the size and nature of the effect, caused by recent demographic trends, regarding China’s economy. As the data about demographic changes will mature, projections regarding the effects of demographic changes on China’s economy will become more precise.
Work Cited
Attané, Isabelle and Baochang Gu. Analysing China’s Population: Social Change in a New Demographic Era. Springer, 2014 .
Cai, Fang. “How to tackle the slowdown of potential growth rate in China?” China Finance and Economic Review 3.2 (2015): 1-12.
China Development Research Foundation. Demographic Developments in China. Routledge, 2014.
Chow, Gregory C. China’s Economic Transformation. John Wiley & Sons, 2015.
Eggleston, Karen, et al. “Will demographic change slow China’s rise?” The Journal of Asian Studies 72.3 (2013): 505-518.
Fang, Cai. “China’s Economic Slowdown under Supply-Side Perspective.” China Economist 11.5 (2016): 4-15.
Guo, Rongxing. An Introduction to the Chinese Economy: The Driving Forces Behind Modern Day China. John Wiley & Sons, 2011.
Li, Hongbin, et al. “The End of Cheap Chinese Labor.” Journal of Economic Perspectives 26.4 (2012): 57–74.
Peng, Xizhe. “China’s demographic history and future challenges. “.” Science 333.6042 (2011): 581-587.
Tian, Xueyuan. China’s Population Aging and the Risk of ‘Middle-income Trap’. Springer, 2017.
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