China in Transition

Challenges for the Chinese Economy as Viewed through the 2020 Population Census
—Focusing on a Declining Labor Force and Inter-Regional Migration

Chi Hung KWAN
Consulting Fellow, RIETI

I. Introduction

In China, the results of the National Population Census that was conducted in 2020 were announced on May 11, 2021 (Note 1 Note 2). The census results cover the size, age and gender compositions and regional distribution of the population, and show the situation of migration between rural and urban areas and between regions in China. Compared with the previous census, conducted in 2010, the latest Population Census, the seventh of its kind, confirms changes in the demographics over the past 10 years, including a declining birthrate and aging population and increased inter-regional migration (Table 1).

Table 1. Results of the Seventh National Population Census in China
-Comparison with the previous census-
Table 1. Results of the Seventh National Population Census in China-Comparison with the previous census-
Note:
1. The above population data covers residents in 31 provinces, autonomous regions, and municipalities directly under the central government in Mainland China, including active military personnel, but exclude residents from Hong Kong, Macau and Taiwan, and foreigners living there.
2. Active military personnel (2.3 million people in 2010 and 2.0 million in 2020) and people whose places of residence cannot be determined (4.65 million people in 2010) are not included in region-by-region data, and as a result, the figures for all regions do not add up to 100%.
Source: Prepared by the author based on the Seventh National Population Census released by the National Bureau of Statistics of China.

II. A Decline in Total Population Coming into Sight

According to the Seventh National Population Census, China's total population in 2020 was 1,411.78 million people, up 72.06 million people (up 5.4%) (Note 3) from 1,339.72 people in 2010. The annual average growth rate of the overall population in the 10 years to 2020 was 0.53%, down slightly from the rate of 0.57% in the 10 years to 2010 (Note 4).

By gender, the population of men was 723.34 million and the population of women was 688.44 million, amounting to shares of 51.2% and 48.8%, respectively, of the total population. The population sex ratio in 2020 was 105.1 men per 100 women, almost the same as the ratio in 2010. The population sex ratio at birth was 111.3 men per 100 women, which was down 6.8 percentage points from 2010 but still well above the normal level of 105(±2). This means that in the future, many adult men may potentially remain unable to get married, a factor which holds down the fertility rate.

In China, the one-child policy was gradually relaxed, and the two-child policy was fully put into force in 2016. In response, the number of newborn babies rose above 18 million in 2016, and 17 million in 2017, up about 2 million and 1 million, respectively, from the previous level. However, the number started to fall again in 2018 and came to only about 12 million in 2020. As the effects of the COVID-19 pandemic added to the trend, the total fertility rate in 2020 fell to 1.3, well below the population replacement rate, which represents the threshold for maintaining the population at a certain level in the long term. It is already merely a question of time before the total population embarks on a downward path (Note 5). Cai Fang, a leading expert on China's demography and formerly a vice president of the Chinese Academy of Social Sciences, predicts that China will reach this turning point before 2030 (Note 6).

III. Loss of the Demographic Dividend Due to Further Aging of Society with a Shrinking Population of Children

As for the age composition of the population, the shrinkage of the population of children has been arrested to some degree in China in response to the relaxation of the birth control measures, but the aging of society is proceeding further, resulting in a shrinking working-age population.

According to the Seventh Population Census, in 2020, the child-age population (0 to 14 years old) was 253.38 million (a share of 17.9% in the total population), the working-age population (15 to 59 years old) was 894.38 million (63.4%), and the old-age population (60 years old and above) was 264.02 million (18.7%). Of the old-age population, 190.64 million people (13.5%) were 65 years old and above. The average age among the total population was 38.8 years old.

Compared with 2010, the child population in 2020 was up 30.92 million (an increase of 1.3 percentage points in the share), the working age population was down 45.24 million (a decrease of 6.8 percentage points), and the elderly population was up 86.37 million (an increase of 5.4 percentage points). The increase in the child population reflects a temporary rise in the fertility rate due to the relaxation of the one-child policy, and it remains doubtful whether the uptrend will continue. Unless the fertility rate rises sharply, the trends of a decline in the share of the working age population and an increase in the share of the old-age population are expected to become entrenched.

In rural areas, the aging of society is more advanced than in urban areas against the backdrop of a massive outflow of the labor force, mainly among younger generations. The share of the population of people aged 60 and above in rural areas in 2020 was 23.8%, 8.0 percentage points higher than the share in urban areas, while the share of people aged 65 and above was 17.7%, 6.6 percentage points higher. Given that the pension system is underdeveloped in rural areas, the aging of society poses a more serious problem there than in urban areas.

The increase in the share of the elderly population coupled with the decrease in the share of the working age population means a decline in the supply of labor. Moreover, as the savings rate is lower among the elderly population than among the working age population, this demographic change could cause the nationwide savings rate to fall, mainly in the household sector. A slowdown in investments (expansion of capital stocks) due to a fund shortage that may be caused by a decline in the savings rate, together with a shrinking labor force, could hold down the potential growth rate. China's potential growth rate is presumed to have already fallen to around 6% from around 10% in the period before 2010, and a further drop is expected in the future.

While the labor force is shrinking in quantity, its quality is improving as a result of a rise in the average level of education among the Chinese people. The share of people with university degrees or higher educational level in China's population rose from 8.9% in 2010 to 15.5% in 2020. Over the 10-year period, the average number of years of education among the population of people aged 15 and above rose from 9.08 years to 9.91 years, while the illiteracy rate fell from 4.1% to 2.7%. As the "demographic dividend" has given way to a "demographic onus" due to the shrinkage of the working-age population, the "talent dividend" is becoming more and more important as a factor supporting China's economic growth on the supply side.

IV. Population Shifting from North to South in Line with Economic Activity

In China, while the income gap between the east and the west is narrowing, that between the north and the south is widening. As a result, the direction of migration has been changing from "west to east" to "north to south." In light of this change, when looking at economic activity and the population distribution in China, we need to add a "north-south perspective" on the top of the traditional perspective of dividing the country into the eastern, central, western and northeastern regions (Note 7).

According to the traditional regional division, the population continues to be concentrated more and more in the eastern region. The Seventh National Census has found that the region-by-region share of China's total population in 2020 was 39.9% for the eastern region, 25.8% for the central region, 27.1% for the western region, and 7.0% for the northeastern region (Note 8). Compared with 2010, the shares rose for the eastern and western regions, by 2.1 percentage points and 0.2 percentage points, respectively, while the shares fell for the central and northeastern regions, by 0.8 and 1.2 percentage points, respectively.

If we look at China's population from the north-south perspective, we see that as the center of the country's economic activity is shifting from north to south, and the center of the population is also moving in the same direction. In fact, between 2010 and 2020, whereas the south's share of the population rose from 57.4% to 59.1% and its share of GDP increased from 57.1% to 64.6%, the north's share of the population fell 42.1% to 40.8% and its share of GDP dropped from 42.9% to 35.4%. (Note 9). The province-by-province contribution to the change in GDP (nominal) over the past 10 years indicates a prominent trend of "high growth in the south and low growth in the north," similar to the trend indicated by the region-by-region contribution to the change in the population (Figure 1).

Figure 1. Province-by-Province Contribution to the Change in the Population and GDP (2010-2020)
—Prominent trend of "high growth in the south, low growth in the north"—
Figure 1. Province-by-Province Contribution to the Change in the Population and GDP (2010-2020)—Prominent trend of
Note:
Source: Prepared by the author based on the GDP statistics and the Seventh National Population Census released by the National Bureau of Statistics of China.

Among provinces where the population sizes have changed significantly between 2010 and 2020, the population in Guangdong Province increased by 21.71 million people to 126.01 million people, while the population in the northeastern region fell below the 100 million mark, decreasing by 11.01 million people to 98.51 million people. In 2020, the share of the working age population in Guangdong Province was 68.8%, higher than the share in the northeastern region (63.2% in Liaoning Province, 65.2% in Jilin Province and 66.5% in Heilongjiang Province). On the other hand, the share of the elderly population in Guangdong Province (12.4%) was much lower than the share in the northeastern region (25.7% in Liaoning Province, 23.1% in Jilin Province, and 23.2% in Heilongjiang Province).

Some academicians argue that the rapid development of the Chinese economy since the launch of the reform and opening-up initiative, which has come to be known as the "China miracle," is based on the foundation that was laid in the era of planned economy. However, we should recognize that the China miracle is the result of a fresh start that the country made from scratch. That is clearly indicated by the remarkable development that has been achieved by Guangdong Province and other regions that proactively promoted the shift to a market economy and opening-up to the outside world despite making a late start, while the northeastern region, which was an industrial base in the era of a planned economy, has remained stagnant over the past four decades.

V. Urbanization Proceeding on the Back of Migration of Labor from Rural to Urban Areas

The change in regional distribution of the population in China mainly reflects the massive migration of labor from rural to urban areas. According to the Seventh National Population Census, in 2020, the urban-area population was 901.99 million people, or 63.9% of the total population (=the urbanization rate based on resident population), while the rural-area population was 509.79 million people, or 36.1% of the total population. Compared with 2010, the urban-area population increased by 236.42 million people, but the rural-area population declined by 164.36 million people, resulting in a rise of 14.2 percentage points in the urbanization rate based on resident population.

However, the urbanization rate based on household registration in 2020 data was 45.4% (as announced at a press conference held by the Ministry of Public Security on May 10, 2021 (Note 10)), still far below the urbanization rate based on resident population. This indicates that many migrant farmers remain registered in rural areas after moving to urban areas. The floating population in 2020 increased from 221.43 million people in 2010 to 375.82 million people, of which around 249 million had moved from rural to urban areas (Note 11 Note 12).

Due to constraints imposed by the current household registration system, many migrant farmers and their families are subjected to various forms of discrimination after moving to urban areas. Because of a lack of urban household registries, they suffer discrimination with respect to education, employment, healthcare, and housing. As a result of delays in granting "urban citizenship" to migrant farmers, a new two-tier social structure, divided into migrant farmers and urban residents, has arisen as a symbol of inequality in China, in addition to the previously existing one, which is divided into rural and urban areas.

VI. China Must Cope with the Aging of Society with Less Children and Relax the Household Registry System

Against the backdrop of the abovementioned demographic changes, dealing with the aging of society with less children and the increasing population mobility has become a critical challenge for the Chinese government. Among major measures to deal with those issues are switching from birth control measures to birth encouragement, raising the retirement age, reforming the pension system, and relaxing the requirements for acquiring urban household registration.

First, to cope with the aging society with less children, the 14th Fifth-Year Plan, starting in 2021, calls for the following measures: (i) enhancing services for elderly people and child care support and realizing an appropriate fertility rate at the same time; (ii) gradually raising the statutory retirement age; and (iii) developing a multi-tier social security system and increasing the participation rate for basic endowment insurance (pension) to 95% (up from the participation rate of 91% in 2020).

To realize an appropriate fertility rate, it is essential to further relax the birth control measures. In fact, at a Politburo meeting on May 31, 2021, it was decided that the government should adopt the policy of allowing each couple to have up to three children. In addition, the government must implement policy measures to encourage more births. Learning from the experiences of other countries, China should further enhance child care support measures such as building more child-care facilities, enabling people of marriageable age and child-bearing age to get married and have children by holding down housing and education costs, giving better consideration to households with multiple children, and implementing a working-style reform that makes it possible for double-income couples to raise children.

Moreover, as the difference between the average life expectancy and the current mandatory retirement age (60 for male workers, 55 for female workers in senior positions, and 50 for other female workers) is widening, raising the retirement age is an effective measure towards increasing the supply of labor. Among Chinese youth, as the university and graduate school enrollment rates are rising, the average age of starting work is also rising. Because the retirement age has remained unchanged, the average lifetime number of years worked is becoming fewer. To make more effective use of workers with high educational levels, raising the retirement age is an essential measure.

A pension system reform is also necessary. Under the existing pension system, there are two pension schemes—"urban worker pension" for company employees, self-employed people, government employees, and employees of government-affiliated organizations in urban areas, and "urban and rural residents pension" for urban residents not in the labor force and rural residents. The benefits paid under the latter scheme is low compared with the amount paid under the former, failing to provide sufficient coverage for life in old age, particularly in the case of residents in rural areas. Moreover, as the pension system is facing a reserve shortfall problem, long-term fiscal support from the government is required. To balance the income and payment of pension finance, it is necessary to raise the pension benefit starting age while extending the pension contribution period, in line with a rise in the retirement age.

Meanwhile, with respect to the reform of the household registry system, the New-type Urbanization Plan (2014-2020), announced in March 2014, called for varying the household registry policy depending on the city size. More specifically, the plan stated the following: (i) that the population size should be strictly controlled with respect to cities with a population of over 5 million people, while liberalization should be promoted regarding the acquisition of household registries in small and medium-size cities; (ii) that 100 million migrants from rural areas should be granted urban citizenship by 2020; and (iii) that a resident card system should be implemented so that all residents can have access to public services based on criteria such as the number of years of residence. Although those goals have mostly been achieved, how to relax the requirements for acquiring urban household registration in cities with a population of over 5 million people will be the focus of attention in the future. A further reform of the household registry system is essential not only for improving productivity on a nationwide basis by promoting the migration of labor from the agricultural sector to the industrial and services sectors, but also for eliminating discrimination against migrant farmers and realizing China's national vision of "common prosperity."

The original text in Japanese was posted on June 7, 2021.

Footnote(s)
  1. ^ The reference time is 00:00 hours of November 1, 2020.
  2. ^ Unless otherwise stated, data cited in this article are taken from the official data and the press conference (held on May 11, 2021) regarding the Seventh National Population Census of the National Bureau of Statistics of China.
  3. ^ The total population covers the residents of 31 provinces, autonomous regions, and municipalities directly under the central government in Mainland China, including active military personnel, but excludes residents from the Hong Kong and Macau Special Administrative Regions and Taiwan, and foreigners living there.
  4. ^ Reflecting the less stringent birth control measures applied to minorities than that applied to Han Chinese, the population of the former is growing at a higher rate than that of the latter. The population of Han Chinese in 2020 was 1,286.31 million people, up 4.9% from 2010, while the combined population of the various minority ethnic groups increased by 10.3% from 2010 to 125.47 million people. As a result, the share of minority ethnic groups in the total population rose from 8.5% to 8.9%.
  5. ^ Japan's population replacement rate is estimated at 2.07 (2015) (Director-general for Statistics and Information Policy, the Ministry of Health, Labor and Welfare, "2017 Vital Statistics in Japan –Trend Up to 2016," March 2017). However, in China's case, the population replacement rate is well above the Japanese level presumably because the population sex ratio at birth is much higher than in Japan.
  6. ^ Cai Fang, "Seen from Both Sides—How Will the Aging of Population Affect the Chinese Economy?" Comparative Studies (Bijiao), No. 2, 2021.
  7. ^ Regional classification of provinces, autonomous regions, and municipalities directly under the central government are as follows: the eastern region = Hebei, Beijing, Tianjin, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong, and Hainan: the northeastern region = Liaoning, Heilongjiang, and Jilin; the central region = Shanxi, Anhui, Jiangxi, Henan, Hubei, and Hunan: the western region = Inner Mongolia Shaanxi, Ningxia, Gansu, Xinjiang, Tibet, Qinghai, Chongqing, Sichuan, Yunnan, Guizhou, and Guangxi. The south is comprised of Jiangsu, Anhui, Hunan, Hubei, Sichuan, Yunnan, Guizhou, Guangdong, Guangxi, Fujian, Jiangxi, Zhejiang, Hainan, Chongqing, and Shanghai, and the north is comprised of the other provinces, autonomous regions, and municipalities directly under the central government.
  8. ^ See Note 2, Table 1.
  9. ^ See Note 2, Table 1.
  10. ^ https://www.mps.gov.cn/n2253534/n2253535/c7877332/content.html
  11. ^ The floating population refers to the population of people who have lived in places different from their location of household registration for six months or longer. However, people who have lived in difference places from their location of household registration within the same cities are excluded.
  12. ^ The number of people per household in China in 2020 decreased by 0.48 people from 3.10 people in 2010 to 2.62 people. This reflects an increase in the floating population, mainly migrant farmers, most of whom live separately from their families, as well as the shrinkage of the population of children and the nuclearization of families.

July 20, 2021