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China Demographics: Boost Birth Rates, Not Retirement Age

As it faces an aging population, China has announced plans to raise its retirement age. But the better solution, and a clearly more urgent issue, is to encourage couples to have more children.

In Tianjin, China
In Tianjin, China
Liang Jianzhang and Huang Wenzheng

BEIJING — An aging demographic usually implies a low birth rate and people living longer. The average life expectancy in China is around the global average, but the proportion of its elderly compared to its youth makes it perhaps the world's most aged country. Even worse is that it hasn't even peaked. While the proportion of over-60-year-olds is 15.5% today, it will soar to 40% in the next two decades.

Ultimately, China's problem has much more to do with low birth rates than having too many elderly people. Coupled with increased life expectancy, China is doomed to face a grim situation unless it further loosens its one-child policy and actively encourages families to have more children.

According to national data, China's working-age population has decreased for the last three years and will continue to shrink dramatically. Meanwhile, the number of pensioners has risen sharply. As people live longer, this also means the corresponding extension of their pension benefits will put mounting pressure on the pension fund's balance.

According to The Beijing News, Lu Hao, the governor of the northeast province of Heilongjiang, recently told the National People's Congress that the pension support ratio in his province is already a troubling 1.42 to 1.

"Do you currently have a debt problem?" asked Premier Li Keqiang.

"No, but maybe in one or two years," responded Lu, whose northeastern region has one of China's lowest birth rates.

The pension gap

"Judging from available data, there is definitely a pension gap in China," says Sun Qun Yi, secretary-general of the China Labor Association's Remuneration Committee.

Meanwhile, Zheng Bingwen, director of the World Social Security Institute, says, "Delaying retirement for a year will lead to an increase of 4 billion yuan ($644 million) in the pension pool fund, a decrease of 16 billion ($2.6 billion) through spending cuts, which together add up to a 20 billion yuan ($3.2 billion) relief of the fund gap."

While delaying retirement for millions of Chinese may help, the fundamental way out in managing an aging China is to raise birth rates and ultimately maintain the basic stability of the younger population. China's birth rate has hovered below a so-called "replacement level" for more than 20 years, resulting in this acute population gap that will drag down China's pension system long-term.

Even worse is that in the coming decade, the number of Chinese women aged between the prime childbearing years of 22 and 30 will shrink a dramatic 40%.

Now is the moment for China. A significant percentage of young Chinese couples aren't yet facing the pressure of supporting their parents and are therefore in a position to raise children who will be adults in 20 years. Once the situation worsens and the workforce diminishes sharply in relation to the number of pensioners, the fiscal situation will deteriorate quickly.

It's more urgent to encourage parenthood than to postpone the country's retirement age. Of course, there are those who believe that encouraging childbirth will increase the government's burden. But, in fact, families bear most of the costs of raising children. The government's spending on children is mainly for education, which only makes up a small part of governmental fiscal revenue.

Take the United States as an example. Its fiscal revenue accounts for 26% of its GDP. Education expenditure totals only 5%, while pension expenditures are 12%. Since the United States has maintained a long-term birth rate replacement level, it basically has a stable demographic structure so the proportions of spending can more or less reflect an individual's impact on the government's revenue and expenditure from birth to death.

If we take the wealth that an individual creates or enjoys in his lifetime, the data suggests that though the government needs to put in 5% to educate him, it can receive 26% in tax and finally use another 12% to support him. In short, what the government receives from an individual will generally be more than its expenditure.

China's situation is similar to the U.S. on one level. Its fiscal revenue accounts for 20% of its GDP while education input accounts for 4%. But because China's birth rate has long been significantly below the replacement level, the number of future workers will dive sharply as a proportion of the total population while that of the elderly will soar.

Currently, restricting childbearing seems to represent a savings for the government. But it also greatly reduces the power that promotes Chinese society's progress. If it's not careful, China will kill the goose that lays the golden eggs.

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