China population: with 20 million fewer people projected by 2035, will the retirement age have to be raised?

China’s population is expected to plunge by 20 million to 1.39 billion by 2035, according to the Economist Intelligence Unit (EIU)
Report suggests raising the retirement age to 65 by 2035 could address a shortfall in China’s pension fund by increasing contributions as its ageing crisis deepens

China's population

Luna Sunin Beijing

Published: 10:00am, 7 Feb, 2024

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China’s population is expected to plunge by 20 million to 1.39 billion by 2035, a report has predicted, further clouding long-term economic prospects and creating implications for delayed retirement and an accelerated automation rate.

The Economist Intelligence Unit (EIU) said last week that China’s population has reached its peak.

And despite a brief rebound of newborns in the next couple years, the number would continue to decline due to China having fewer women of childbearing age, delays in people getting married, as well as the growing popularity of not having children altogether, according to its report.

“The government’s pronatalist policies will have a limited effect. Married couples have cited high economic costs as a major reason for having fewer children, based on various market surveys,” the EIU report said.

China’s population dropped for a second year in a row in 2023, falling by 2.08 million from 2022 to 1.4097 billion, while Chinese mothers only gave birth to 9.02 million babies last year, representing the lowest level since records began in 1949.

Meanwhile, China’s workforce is also shrinking, as its working-age population aged between 16-59 also fell from 875.56 million in 2022 to 864.81 million last year, which may lead to an acceleration of automation, as well as the postponement of the retirement age, the report said.

“[But] the government [is expected] to postpone the retirement age only gradually to avoid cannibalising young hires at a time when youth employment is already at all-time high, which risks social stability,” the EIU said, with China’s adjusted jobless rate for 16 to 24 age group standing at 14.9 per cent in December.

China’s retirement ages are among the lowest in the world – 60 for men, 55 for female office workers and 50 for female blue-collar workers. Beijing confirmed in 2022 that it would start pushing back its long-mandated policy in the coming years, but no timetable has been released.

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The EIU’s calculations suggested that if China’s retirement age was raised to 65 by 2035, the pension budget shortfall could be reduced by 20 per cent, while net pension contributions could be increased by 30 per cent, pointing to relief for governments and households.

Research in 2019 showed that China’s main state pension fund would run out of money by 2035 due to a decline in the available workforce.

People aged above 60 will account for 32.7 per cent of China’s population by 2035, the EIU said, up from 21.1 per cent in 2023. People aged 65 and above will also rise from 15.4 per cent last year to 25.1 per cent by 2035, the report added.

“Although this suggests a heightened fiscal burden, it will also positively affect the healthcare-sector demand and at-home spending, particularly with individuals returning home after retirement,” the EIU said.

China’s changing demographics, as the working-age population falls and young workers increasingly favour service jobs, is also having an impact on factory operations as manufacturers are increasingly turning to machines and robots to help fill the gap.

And while China’s population decline is occurring more rapidly than anticipated, it would maintain the world’s second-largest population for the foreseeable future, ensuring a substantial market size, according to the report.

In April last year, the United Nations said India had replaced China as the world’s most populous country.

But analysts said that it still boasts a large and still-growing pool of quality workers, and that it would be difficult for India to be equipped with the same demographic resources that buttressed China’s rapid economic growth and industrial upgrades.

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Demographers have, though, conceded that China’s policies to boost its population are unlikely to deliver imminent effects, and many have urged society to adapt to the new norm with contemporary policy systems and a suitable service infrastructure.

Existing hardships, such as an insufficiency of child care services, the financial pressure to care for elderly parents and the cost of housing and raising a child, remain the biggest deterrents, said He Dan, director of the China Population and Development Research Centre.

Unstable expectations, including low income level, employment and career development are also factors, He said in the article published in the latest issue of Population and Health magazine.

Future population reallocation will mainly be driven more by migration between urban areas, rather than from rural to urban areas

The Economist Intelligence Unit

China’s demographic shifts would also drag down its urbanisation push, the EIU said.

“Future population reallocation will mainly be driven more by migration between urban areas, rather than from rural to urban areas, which will result in a gradual slowdown in the urbanisation rate,” the report added.

At the end of 2023, the urbanisation rate in China had reached 66 per cent.

And as most Chinese people already live in urban areas, the rural population would not drop as fast as it has in the last two decades, and the regional economic disparity will keep driving people into large city clusters, said the EIU’s deputy China economist Tianzeng Xu.