Yi Fuxian

Opinion | Worse than Japan: how China’s looming demographic crisis will doom its economic dream

Yi Fuxian says a look at China’s ratio of working-age population to the elderly is ominously similar to Japan’s in the early 1990s, boding ill for the Chinese dream and the global economy as a whole

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Yi Fuxian

Published: 1:30am, 4 Jan 2019Updated: 5:59am, 4 Jan 2019

China first began to promote population control in 1973 and introduced its one-child policy in 1980. As a result, its total fertility rate, or births per woman, dropped from 4.54 in 1973 to 2.29 in 1989, then to 1.22 in 2000 and 1.05 (then the lowest in the world) in 2015.

Japan’s low fertility rate triggered an economic crisis in the 1990s. By 1992, Japan’s median age had increased to 38.5 (China hit that figure in 2016), while its old-age dependency ratio – the number of people aged 65-plus per 20- to 64-year-olds – increased to 18 per cent (China is predicted to hit that figure by 2023).

Meanwhile, Japan’s ageing index (those over 65 per 100 people aged under 15) increased to 76 per cent (2018 for China), and the proportion of people aged 15-39 fell to 35 per cent (2020 for China). Japan’s labour force began to decline in 1996 (2014 for China). Therefore, China's demographic structure is similar to that of Japan in 1992, and it may be experiencing an economic crisis similar to that of Japan in the 1990s.

Japan’s economic crisis was essentially a demographic crisis. The decline in young people in the labour force has led to a shortage in manufacturing: the workforce employed in industry decreased from 22.9 million in 1992 to 17 million in 2017, and the workforce is ageing, leading to a decline in production and innovation. As a result, Japan’s manufacturing exports as a share of the global total declined from 12.5 per cent in 1993 to 5.2 per cent in 2017, and the number of Japanese firms ranked in the Fortune Global 500 fell from 149 in 1994 to 52 in 2018.

In any society, an increase in the number of elderly leads to a drop in savings, and a decrease in the labour force leads to a decline in return on investment, which reduces the investment rate. From 1991 to 2016, Japan’s savings rate fell from 35.7 per cent to 24.5 per cent, and the investment rate fell from 34.2 per cent to 23.6 per cent.