China raising its retirement age may be unpopular but it's much needed, analysts say

China's top legislative body passed an official plan Friday to begin incrementally raising the nation's statutory retirement age from Jan. 1 of next year and concluding in 2040, according to Chinese state media.

The final goal of the roughly 15-year plan is to raise the retirement age by three years for men to 63 years old, five years for women that work in factories from 50 to 55 and three years for women that work in white-collar jobs from 55 to 58.

The reforms are "overdue and very much welcome," Erica Tay, director of macro research at Maybank Investment Banking Group, told CNBC.

China has been grappling with a shrinking workforce and looming pension budget shortfalls that could significantly damage the economy.

Economists have long called for an overhaul of the nation's retirement age laws, currently among the world's lowest, which was set in an era of lower life expectancies. In 2023, the average life expectancy increased to 78.6 years, from roughly 44 years in 1960.

Beijing's low birth rates and relatively-young age of retirement means its working-age population will continue to shrink.

The country needs to be able to tap into its pool of older workers when workforce contraction becomes more acute in the next decade, Tay said. "This policy change will forestall a sharper drop in China's potential growth, if only marginally."

It is a prudent move that "strikes a balance between fixing the demographic stagnation and managing people's expectations" in a gradual and measured pace, said Bruce Pang, chief economist and head of research for Greater China at JLL, an investment management firm.

Beijing had previously said it was mulling the plan of raising retirement ages but backed away after spurring public outrage.

"The plan