China’s demographic doom loop

China has announced that in 2023 its population declined from 1.4118 to 1.4097 billion people. Forecasting by the UN suggests China’s population will dip to 1.313 billion by 2050 and then down to about 800 million by 2100. This is a significant change and will have ramifications well beyond its borders.

There are two trends that underline such a demographic shift. First is the aging population with the percentage of those aged 60 and older currently above 20% of the total population.

Second, birth rates have dropped significantly, from 17.86 million births in 2016 to 9.02 million in 2023. Several interrelated economic consequences of such shifts could emerge which ultimately can affect China’s economic wellbeing in the mid-to-long term and resonate globally.

More than one-quarter of China’s population will be over 60 by 2040 and so less economically active (retirement age for men is 60 and for women it’s 50-55). This will put pressure on China’s pension and elderly care systems with some predictions indicating that the pension system could be bankrupted by 2035.

To avoid pension-related issues straining public resources, possible scenarios include raising the retirement age to get people to work for longer, increasing taxes to cover additional pension requirements and shrinking current benefits.

Changes in the healthcare system to cope with population changes could leave the many people feeling less well off or unhappy with services being reduced. This in turn could result in some degree of political instability.

In addition, as the dependency of the elderly on their children increases, household consumption, savings and investment levels are likely to decline, which in turns negatively affects the overall health of the