context: The first reported population decline in over six decades grabbed attention at home and abroad. Concerns arise over stagnation amid a shrinking workforce. Renowned economist Cai Fang 蔡昉 from the state-affiliated think tank, the Chinese Academy of Social Sciences, does not see that negative population growth spells doom and gloom for the economy. Part of the solution, he suggests, is a more productive labour force and tech innovations. The second part entails achieving 'common prosperity', a flagship policy orientation of Xi's administration that gained new momentum after the 20th Party Congress (October 2022).
Seeing no need to be overly pessimistic about negative population growth, leading demographer and economist Cai Fang 蔡昉 argues that the key to overcoming demographic challenges lies in boosting the productivity of the labour force and promoting common prosperity for all, reports Caijing Magazine.
An increasingly ageing population, nevertheless, will impact the demand side of the economy, as household spending constrains growth, Cai warns. The spending power and willingness of the elderly are limited by meagre income, low employment rates and inadequate social security.
The middle-aged cohort has also become less inclined to spend money, observes Cai, as they bear the burden of paying pensions, supporting their ageing parents and building precautionary savings. The average consumption expenditure of those aged 23-85 drops by 1.8 percent for each additional year of age, according to surveys in several cities.
Amid a shrinking working-age population, economic growth potential lies elsewhere on the supply side, says Cai. Agriculture now accounts for 23 percent of China’s employment, which could decrease further to three percent based on figures in advanced economies. This could free up millions of workers for higher productivity jobs.
Moving ahead, Cai points out, increasing productivity will be primarily contingent on introducing innovations and technologies displacing outdated products, services and methods of production—a process described as creative destruction, where new jobs and sectors emerge along with the decline of traditional industries.
To boost demand, the crux of the strategy is promoting common prosperity, Cai argues. Essentially, this entails improving household income, especially for low-wage earners. Meanwhile, there should be a more equitable provision of basic public services regardless of region (i.e. urban or rural areas), occupation, ownership structures (e.g. private firms or state-owned enterprises) or family background.
Cai believes that a larger middle-income cohort, plus a solid social welfare system, can break the consumption bottleneck as households' ability and willingness to spend increase.