China's Demographic Dilemma

On June 30th 2006, Howard W. French wrote an article for The New York Times entitled 'As China Ages, a Shortage of Cheap Labor Looms'. Throughout China, 'one of the greatest demographic changes in history' will be taking place as the policies of communist China hinder economic growth over the upcoming 40 years. Here is the beginning of the article:

Shanghai is rightfully known as a fast-moving, hypermodern city — full of youth and vigor. But that obscures a less well-known fact: Shanghai has the oldest population in China, and it is getting older in a hurry.

Twenty percent of this city's people are at least 60, the common retirement age for men in China, and retirees are easily the fastest growing segment of the population, with 100,000 new seniors added to the rolls each year, according to a study by the Shanghai Academy of Social Sciences. From 2010 to 2020, the number of people 60 or older is projected to grow by 170,000 a year.

By 2020 about a third of Shanghai's population, currently 13.6 million, will consist of people over the age of 59, remaking the city's social fabric and placing huge new strains on its economy and finances.

The changes go far beyond Shanghai, however. Experts say the rapidly graying city is leading one of the greatest demographic changes in history, one with profound implications for the entire country.

The world's most populous nation, which has built its economic strength on seemingly endless supplies of cheap labor, China may soon face manpower shortages. An aging population also poses difficult political issues for the Communist government, which first encouraged a population explosion in the 1950's and then reversed course and introduced the so-called one-child policy a few years after the death of Mao in 1976.

That measure has spared the country an estimated 390 million births but may ultimately prove to be another monumental demographic mistake. With China's breathtaking rise toward affluence, most people live longer and have fewer children, mirroring trends seen around the world.

Those trends and the extraordinarily low birth rate have combined to create a stark imbalance between young and old. That threatens the nation's rickety pension system, which already runs large deficits even with the 4-to-1 ratio of workers to retirees that it was designed for.

Demographers also expect strains on the household registration system, which restricts internal migration. The system prevents young workers from migrating to urban areas to relieve labor shortages, but officials fear that abolishing it could release a flood of humanity that would swamp the cities.

As workers become scarcer and more expensive in the increasingly affluent cities along China's eastern seaboard, the country will face growing economic pressures to move out of assembly work and other labor-intensive manufacturing, which will be taken up by poorer economies in Asia and beyond, and into service and information-based industries.