Policy adjustment essential to maintain long-term economic growth

Perhaps one of the most intriguing aspects of the government's restructuring plan released on March 10 will be the merger of the existing Health Ministry and the National Population and Family Planning Commission into a new National Health and Family Planning Commission, and the transfer of responsibility for population development strategy and population policy to the National Development and Reform Commission.

The transfer of responsibility for the population strategy to the National Development and Reform Commission indicates that the government will consider population policy on the basis of its impact on China's overall economy. But any significant change in policy should not be expected overnight. Senior officials reiterated that China will stick to its family planning policy.

However, this shift of perspective is vital because China's economic growth is becoming increasingly reliant on human capital.

There is a heated debate about whether the family planning policy is bringing China's demographic dividend to an end. Recently, the National Bureau of Statistics said that China's working-age population - people aged from 15 to 59 - registered a decline in 2012, dropping by 3.45 million to 937 million. This means that the proportion in the total population shrank by 0.6 percentage points to 69.2 percent. The bureau expects the trend to continue until 2030.

In fact, China's demographic dividend is not ending, but entering an era of relative decline.

Historically, all the countries that have successfully industrialized have benefited from their demographic dividend. This window of opportunity makes faster economic growth possible. However, the emergence of a demographic dividend is not automatic, it is predicated on effective policies and markets. In East Asia, the demographic dividend has contributed significantly to the expansion of the labor pool and economic growth. In much of the Middle East, demographic changes have generated huge "youth bulges" in the population, but without accompanying job opportunities there has been no demographic dividend.

In 1980, on the eve of economic reforms and opening-up, China's total population amounted to more than 980 million. By 2015, the total population is expected to be around 1.37 billion, and the working population about 920 million.

You only have to scratch the surface to see the underlying trends more clearly. In China, the population growth rate peaked at 2.8 percent in the mid-1960s. It halved to 1.4 percent in 1980, and it is expected to plunge to barely 0.4 percent in the next few years. More importantly, the median age in China was 22 in 1980; today it is almost 36.

There is nothing enduring about the demographic dividend.

In late February, Foxconn Technology Group, the electronics manufacturing giant, halted recruitment at one of its key plants in Shenzhen, the cradle of Chinese economic reforms. The decision was motivated by plans to further automate production processes and the higher-than-expected number of workers that returned after the Spring Festival holiday.

Foxconn is not the first to move toward automation in China. Many multinational companies have been replacing human labor with automation. Chinese companies that have expanded into advanced economies have acquired advanced manufacturing technology, and, ultimately, they will bring home their new capabilities, in order to upgrade their domestic operations.

At the same time, the millions of college students who graduate in China each year are facing the harsh reality that a college diploma is no longer the assurance of a good job.

China is moving from one stage of growth to another. This transition is not new in kind. As advanced economies industrialized and moved from cost efficiencies to innovation, they had to cope with comparable challenges. But what makes the Chinese transition so distinctive and so challenging is its size.

The turning point has arrived in China's first and second-tier cities, especially in the coastal regions. But in much of China - the third- and fourth-tiered cities, inland - industrialization has barely begun and the demographic dividend still offers great benefits.

But what if the current demographic trends are allowed to prevail? China's population size would peak at 1,395 million in 2025. In the next quarter of a century, it would decline by 100 million, to 1,296 million. As a result, the working-age population would drop to 53 percent, or 680 million (a loss of some 240 million in just 35 years). The old-age dependency ratio would soar.

How can the government alleviate the adverse impacts of the ongoing demographic changes?

When China's family planning policy, under which most families are allowed to have only one child, was introduced in 1979, the goal was to alleviate economic and social problems. But at that time, China's population was 970 million, almost 400 million people fewer than today's population, and the population growth rate almost twice as fast as today. The current family-planning policy did not create the current demographic trends, but it has amplified them. That is why some of China's leading demographers now argue for an adjustment to the policy.

The goal of scientific development is a harmonious society. Such harmony is predicated on balance, which is economic, social - and demographic.

The author is research director of international business at India, China and America Institute (US) and visiting fellow at Shanghai Institutes for International Studies (China) and EU Centre (Singapore). The views do not necessarily reflect those of China Daily.

(China Daily 03/15/2013 page8)