China: Policies and Trends Aiding Big Growth Set to Wind Down

The one-child policy will start to bite by 2015. Will the chinese get old before they get rich? If the answer is yes, the growing financial burden will definitely cut growth rates, and could well lead to instability.

Three challenges especially stand out for the Chinese: The nation’s changing work force, a widening in the gap between rich and poor and severely constrained supplies of energy and environmental resources.

Population



The precedents aren’t encouraging. Many developing countries in Latin America and the Middle East stagnated after periods of rapid growth. Economists sometimes call this the “middle-income trap” because so many countries have failed to achieve consistent growth that would deliver higher prosperity.

In the next few years, China will cross the threshold to a majority-urban society. China’s urbanization rate is about 40% to 45% now, well below levels of about 75% in most of Western Europe and Latin America, but statistics show that growth in China’s urban population is already slowing. Since urban workers earn more than three times as much as rural ones, the annual migration of more than 10 million farmers into cities has boosted the economy.

Moreover, a smaller number of workers will have to support an increasing number of elderly. The United Nations projects that China’s working-age population will account for a decreasing share of the total after 2010, and will start shrinking in absolute terms after 2015 — the long-delayed effect of the strict family-planning policies that came in the 1970s.

The “demographic dividend” from a young and growing work force may have been responsible for a quarter of China’s growth to date, says Wang Dewen, a demographer at the Chinese Academy of Social Sciences. In the future, he and other scholars argue, China will have to grow by making more productive use of fewer resources — working not just harder, but smarter.

More by Andrew Batson and Jason Dean.