Letters | China beat the coronavirus, but a greying workforce may prove a greater challenge

In May, Premier Li Keqiang announced at the National People’s Congress that China would not set an economic target for the year, given the global coronavirus pandemic and great uncertainty in international relations. In the first quarter of the year, China recorded its first economic contraction since 1976, with industrial production declining 13.5 per cent in January and February. Although the country reported positive growth in the second quarter, another spectre looms.

In the longer term, population ageing will be the biggest stumbling block to long-term industrial development, cutting China’s labour force by millions. Economists and sociologists have expressed concern that the “demographic dividend”, the main driving force of China’s economic growth, has disappeared.

Indeed, the China-US conflict has transformed the division of labour in the world’s factories. Increasing labour costs – on top of an opaque business and political environment – have weakened China’s attractiveness to multinational companies. Foreign businesses have begun to seek new investment destinations and Southeast and South Asian nations, such as Vietnam and India, could supplant China as the world’s factory due to their lower labour costs and gradually easing policy regimes.

There are also cultural factors at play. Because filial piety is a prized value, many Chinese parents see their children as a retirement plan, expecting them to provide financial support, especially because the country lacks robust retirement protection.