蔡昉：From abundance to shortage

    China's demographic trends mean the population has less inclination to consume
    According to the eagerly anticipated findings of the Seventh National Census, China's total population in 2020 was 1.41 billion, an increase of 72.05 million since the Sixth National Census in 2010.
    That represents an average annual growth rate of 0.53 percent, which although within expectations indicates slower population growth over the past decade, compared to the one before.
    Notably, after nearly 30 years when the fertility rate, or births per woman, was lower than the replacement level of 2.1－the total fertility rate has now declined to 1.3.This means that the aging of the population is irreversible and the further disappearance of the demographic dividend is inevitable.
    As an ancient Chinese classic, The Book of Rites, says, let the producers be many and the consumers few, "more producers than consumers" is a rather accurate explanation of the demographic dividend. Demographers usually group a population into three categories: the youth population aged under 14, working age population aged between 15 and 59, and the elderly aged 60 and above. The population group in the middle is characterized as being more productive than consumptive, whereas the groups at either end are more consumptive than productive.
    From 1980 to 2010, the working age population grew faster than the youth and elderly populations, giving rise to a low and constantly declined dependency ratio (the ratio of the combined youth and the elderly populations to the working age population). That is a typical scenario where there are more producers than consumers.
    The unique population age structure during that period helped achieve high economic growth as there was a sufficient supply of labor both in quantity and quality, high savings rates and favorable returns on investment, and increased productivity by reallocating the labor force. Thanks to the demographic dividend, the aggregate demand consisting of exports, investment and consumption was also strong and helped unleash the economy's growth potential.
    The peak in the working age population in 2010 has led to a tipping point for economic growth, resulting in labor shortage, slower improvement of human capital, diminishing returns on capital investment, slowdown of productivity growth, and, as a result, a decline in growth potential. From 2011 to 2019, official statistics show the actual growth rate of the Chinese economy dropped from 10.4 percent to 6.0 percent. This decline not only confirms the fading demographic dividend, but also indicates the close coordination between supply and demand sides during this period.
    The population is expected to peak around 2025, which will trigger another tipping point by imposing adverse impacts on China's economic growth from the demand side. Not only will the further weakening of the comparative advantage of manufacturing tend to reduce exports and investments, but an aging population has less ability and propensity to consume.
    Considering the purpose of economic development, the existing potential, the balancing of the three major demands and maintaining the sustainability of the demands that are important to economic growth, there are good reasons to promote resident consumption on a priority basis, responding to the demand-side challenges of the aging of the population. With the population growth rate close to zero and further population aging, three effects will influence the consumption demands of the Chinese families.
    The first is the population growth trend. Consumption slows down as population growth slows, and consumption encounters difficulties increasing as population decreases.
    Here, we can reasonably modify what we cited in The Book of Rites to stress the challenges imposed by the vanishing demographic dividend. That is, the Chinese demographics will change from sufficient labor supply, or producers' abundance, to inadequate demand, or a shortage of consumers.
    The second effect is the population's age structure. The aging trend tends to reduce household expenditure in two ways. The low payment level and imperfect coverage of the pension system tend to reduce the ability and propensity of the elderly to consume. As aging deepens, the employed not only have to contribute heavily to social insurance programs, but also tend to save more on a precautionary basis.
    A third effect concerns income distribution. As a result of the aging population, economic growth slows, labor force participation tends to decline, and residents' income grows at a slower rate, making it harder to improve income distribution. As the law of economics assumes that low-income households have a higher marginal propensity to consume than high-income households, the persistent income inequality is very likely to reduce overall consumption.
    To tackle the impacts of stagnant population growth, the following aspects are decisive. The first is making the related policies more inclusive and reducing the cost of delivery, childcare and education. The second is to improve older workers' employability, increase labor force participation, and be fully covered by social insurance programs. The third is to narrow the income gaps and expand the size and proportion of the middle-income group.
    文章出处：China Daily，2021年5月27日