China facing economic crisis as population peak nears, PBOC adviser says
- Consumption set to slump after population tops out in 2025, says Cai Fang, a member of the central bank’s monetary policy committee
- Beijing must ‘increase labour participation and social security benefits’ for the elderly to shore up consumer demand, he says
China’s population is set to peak in just four years’ time and the milestone will be marked by a significant downturn in consumer demand, an adviser to the central bank has warned.
“We need to pay attention to the impact of demographics on future consumption.”
Cai, who joined the central bank’s advisory body last month after retiring from the Chinese Academy of Social Sciences, said the number of Chinese of working age had been in decline since 2010, which had mainly affected the supply side of the economy.
His comments came after the PBOC recently published a paper highlighting the imminent problems caused by China’s falling birth rate, and calling for further liberalisation of the two-child policy and an increase in support measures for women to encourage them to have more babies.
The paper, which was published ahead of the release of China’s latest census later this month, said the proportion of elderly people among the total population rose to almost 13 per cent in 2019, from 7 per cent in 2000, and could hit 14 per cent by 2022.
Beijing estimates the national fertility rate at just 1.5 children per woman, which is one of the lowest in the world.
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Cai said that if people of working age were faced with the additional financial burden of looking after an elderly relative while trying to raise a family it would make them more likely to save than consume.
That would be bad news for the economy as the government has sought in recent years to drive growth through domestic consumption.
“The cost of childbearing, parenting and education are the biggest constraints on young couples,” Cai said. “For the elderly, we need to increase their labour participation and social security benefits so that they can contribute to and share in the economic growth, while also maintaining consumer demand.”
The government should also do more to stimulate consumption among low-income groups that had a higher propensity for spending than the wealthy, he said.
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Beijing said in its latest five-year plan that it was committed to reducing income inequality but has yet to introduce any major changes to its tax or spending policies. Chinese government officials have tended to favour supply side policies, such as investment, over handing cash to consumers.
Assistant finance minister Ou Wenhan said earlier this month that it was necessary to maintain stability of the macro tax burden over the next five years.
“That means there will not be a major increase or decrease in tax revenue’s ratio to GDP,” said Andrew Batson, director of China research at consultancy firm Gavekal.
“In other words, the government is not preparing to raise revenue to finance a major expansion of the welfare state.”
