China’s Population is Shrinking and Ageing. What can the Government do?

By Xiujian Peng

China’s population is about to decline and is also ageing rapidly, which will have a profound impact on China’s economy. However, well-designed and comprehensive policy packages will slow down the declining rate of population and mitigate its negative effect. China’s economy will keep growing but at a slower pace.


Declining population

China’s population, the world’s largest at over 1.4 billion, is about to shrink this year. This will be the first decline since the great famine of 1959-61.

The research team at the Shanghai Academy of Social Sciences (SASS) predicted an earlier and deeper decline of the country’s population as compared to others (Peng, 2022). The United Nations’ Population Prospects, released in July, confirmed SASS’s prediction, although, according to its predictions, the decline will begin in 2023 (United Nations, 2022). The Chinese government recently officially announced that China is expected to enter a period of negative growth during the 14th Five-Year Plan period (2021-25) (Global Time, 2022a), which is at least eight years earlier than the government’s previous projection.

Demographers believe that the number of newborns in 2022 will fall sharply, in line with a similar fall
in 2021.

“Data for the first half of 2022 from some provinces and cities indicate further drops in births compared with last year, as COVID restrictions have kept tens of millions of Chinese at a time cooped up in their apartments and put a wet blanket on economic activity across the country” (Qi, 2022).

Figure 1

Meanwhile, as shown in figure 1, the number of deaths will continue its upward trend in line with rapid increases in the number of elderly people. The sharp decrease in births and progressive increase in deaths means a net fall in population in 2022.

What will the future of China’s population be? The research team at SASS predicts in its low variant that, having reached its peak in 2021, China’s population will decline at an annual average of 1.1 per cent from 2022, pushing China’s population down to 587 million in 2100, less than half of what it is today. Underlying this projection is an assumption that China’s total fertility rate (average births per woman) declines linearly from 1.15 in 2021 to 1.1 in 2030, and remains there until 2100. The SASS reasons that, regardless of the government’s two-child policy announced in 2016, COVID-19 and the government’s strict “dynamic zero policy” have greatly impacted the effectiveness of the three-child policy announced last year. SASS argues that, even without the impact of the pandemic, there is little hope that the three-child policy will boost fertility if all the driving forces behind China’s declining fertility rate, such as high housing prices, expensive education costs, and women’s job insecurity after giving birth, haven’t been properly addressed.

Figure 2

Fast ageing

The low fertility rate, combined with a rising life expectancy, leads to an ageing population. By 2100, the working-age population in China is expected to be less than one-third of its 2014 peak (figure 2). Throughout the majority of that time, it is anticipated that China’s elderly population (those 65 and older) would keep growing, surpassing the country’s working-age population close to 2080 (figure 2). This implies that by 2100, the same amount of working-age people will be expected to support up to 120 senior persons, compared to the current ratio of 100 working-age individuals to every 20 elderly people.

The low fertility rate, combined with a rising life expectancy, leads to an ageing population. By 2100, the working-age population in China is expected to be less than one-third of its 2014 peak.

At a regional level, declines in population and workforce numbers will intensify the movement of people to economically developed areas, thus expanding the regional distribution of the population and accentuating the imbalance in economic growth that currently exists in China. Also, the migration of China’s young and middle-aged population from rural to urban areas, from northeastern, central and western regions to eastern coastal areas, will further aggravate the ageing problem in those places of origin, especially in rural areas. It will bring serious challenges to China’s institutional arrangement of basic social security and public services provided by local governments.

Implications for China’s economy

A declining and ageing population will have a profound impact on China’s economy from the present through to 2100.

Higher labour costs and slower economic growth

Rising labour costs, resulting from a dwindling labour force, are expected to drive low-margin, labour-intensive manufacturing out of China and toward nations with plentiful labour such as Vietnam, Bangladesh, and India. Manufacturing labour costs in China are already twice as high as in Vietnam.

Secondly, with the working-age population projected to fall at an annual average rate of over 1.7 per cent between 2020 and 2100, increasing pressure will be placed on productivity improvements as a driver of Chinese economic growth. Modelling by the Centre of Policy Studies at Victoria University suggests that productivity has to grow at an average of 2.5 per cent annually, and capital to grow at 3.5 per cent, to maintain an average 3.0 per cent annual growth of real GDP from 2022 to 2100.

To many, these appear to be impossible tasks. Many scholars argue that a rapidly ageing society leads to less incentive to innovate, and slower, rather than faster, productivity improvement.

Shrinking domestic market and increasing demand for pension and aged-care services

From the demand side, growthof the huge domestic market is one of the reasons for China’s economic success in the past. The fast-declining population means a shrinking domestic market, leading to China having to rely increasingly on exports to sustain its economic growth.

At the same time, to meet the expectations of the rapidly expanding senior population, China will need to devote more of its productive resources to the delivery of health care, medical, and elderly services. The same economic modelling suggests that if China’s pension system is left unchanged, pension payments will increase five times from 4% of GDP in 2020 to 20% of GDP in 2100.

Policies dealing with declining fertility and ageing

This picture of population decline and falling economic growth gives cause for alarm for the rest of the world.

With the labour force declining, investing in human capital to improve workforce quality and boost innovation and technology improvement will be essential to mitigate the negative effects of the declining and ageing population.

What should China do to mitigate the negative impacts? Can China follow the United States and Australia to solve its labour shortage and ageing problems through international immigration? The answer is probably “no”, because of its unique language and mono-ethnic culture. Most importantly, immigration from other countries can only solve the problem temporarily. Fertility decline is a common trend in countries around the world. According to data released by the United Nations (2022), the global total fertility rate (TFR) has dropped from an average of 4.70 children per woman in 1960 to 2.32 in 2021, a drop of more than half. The TFR in lower-middle-income and low-income countries has been declining as well.

Suggested ways to resolve the problems associated with the ageing and declining population in China include a continuation or adoption of policies that encourage fertility, increasing the retirement age, investing in human capital, and continued technology innovation.

1. Encouraging fertility

Evidence from European countries, which were the first to display a decline in fertility and to experience population ageing, shows that, once fertility declines below replacement levels (2.1 children per woman), it is very difficult to bring it back to replacement levels. A few European countries and some East Asian ones (for example, Japan, South Korea, and Singapore) have successively implemented policies to encourage fertility, but the impact has been slow to manifest itself. The most successful example is Denmark, which brought its fertility back from 1.38 in 1983 to 1.72 in 2021 (United Nations, 2022).

Despite the difficulties experienced elsewhere, the Chinese government has to find effective policies to encourage birth, otherwise fertility will slip even lower (South Korea’s TFR dropped to 0.88 in 2021, the lowest in the world (United Nations, 2022)).

In order to promote its three-child policy, in August this year the Chinese government issued the “Guiding Opinions on Further Improving and Implementing Active Reproductive Support Measures”. This accelerates the establishment of an active birth support system. Birth support measures include a comprehensive set of favourable policies, such as the universal provision of child care, tax incentives for child-bearing couples, and education and housing subsidies to reduce the cost of childbirth, parenting, and education.

2. Increasing the retirement age

Increasing the retirement age to 65 from the current 60 for men, 55 for women officials, and 50 for women workers will immediately reduce the number of retirees and, hence, expenditure on pension benefits. At the same time, it has the potential to increase labour force numbers and, hence, contributions to the
pension scheme.

The same economic modelling shows that by gradually increasing the retirement age to 65 for both men and women starting from 2022, the pension deficit will be reduced significantly. It will also boost economic growth. However, the gains from the policy will reach their highest point around the middle of the century, and will diminish thereafter because of the declining population in the cohort of 55-65, resulting from the low fertility rate at the beginning of the century when this cohort population was born.

The impacts of birth-encouraging policies would probably be small in the short to medium term, because, even if the policies are successful, an increase in the fertility rate will not immediately prevent a decline in the labour force. However, it will be a strong policy in the long run. On the other hand, raising the retirement age is a powerful policy in the short to medium term. It appears likely that a combination of the two will be necessary to deal with the ageing problem.

3. Innovation, technology improvement, and increasing human capital

With the labour force declining, investing in human capital to improve workforce quality and boost innovation and technology improvement will be essential to mitigate the negative effects of the declining and ageing population.

China is already on this track. For example, the number of college graduates in 2022 is expected to reach 10.76 million, a record high that will surpass the number of newborn babies in 2021 (Global Times, 2022b). Meanwhile, the world has also witnessed China’s progress in high-tech fields such as electric vehicles, 5G networks, and artificial intelligence. China has been automating its industries, using robotics and other technologies extensively to replace manpower in factories, farms, and catering positions. The Chinese government also announced putting “whole nation” efforts to advance technological development and achieve the nation’s goal of becoming a world-dominant high-tech player by the middle of the century. With this ambitious goal and the whole nation’s efforts, China aims to transform itself from “the world’s factory” to a new export hub of high-margin and high-tech embedded products.

These measures may not alter the trend of population decline and ageing. However, well-designed and comprehensive policy packages will slow down the rate of population decline and mitigate its negative effect. China’s economy will keep growing but probably at a slower pace.

About the Author

xiujian PengXiujian Peng is a senior research fellow at the Centre of Policy Studies (CoPS), Victoria University, Australia. Her main area of expertise centres on the development of general equilibrium models and their application to China, with particular emphasis on demography, labour markets, energy, and economic growth.


  1. Global Times (2022a), “China’s population expected to see negative growth before 2025: official”.
  2. Global Times (2022b), “China’s population to remain at 1.4b in following years despite decline in newborns: official”.
  3. Peng, X. (2022), “China’s population is about to shrink for the first time since the great famine struck 60 years ago. Here’s what it means for the world”, The Conversation, 30 May 2022.
  4. Qi, Liyan (2022), “China’s Economic Slump Bodes Ill for Birth Numbers”, Wall Street Journal, 4 September 2022.
  5. United Nations (2022), World Population Prospects 2022, Online Edition, Revision 1, Population Division, United Nations.
The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of All China Review.


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