China’s population peak hastens fiscal reckoning

China’s slow-moving population crash is speeding up. The government must now contemplate radical changes to policy to compensate, earlier than expected.

Beijing was supposed to publish results from its latest census in early April. Weeks later it remains under wraps, raising suspicions that worse-than-expected numbers are being tweaked. The Financial Times reported on April 27 that China’s population contracted for the first time in five decades last year, citing unnamed sources.

The statistics bureau indirectly denied that, but some officials expect the peak to come as early as 2025 regardless. Yi Fuxian, a well-known reproductive scientist, believes the national headcount began shrinking in 2018, and says this will prevent the Chinese economy from overtaking the United States.

Beijing hoped gradually modifying its controversial “one-child policy” in 2013 to allow more families to have up to two children would produce a sustained rise in birth rates. It did not. High living costs deter some young couples from procreating. As more women prioritise careers, the marriage rate is plummeting too.

The current 1.4 billion population estimate might be inflated. Local governments seeking central fiscal support have incentives to double-count residents who emigrated elsewhere. While average wealth per capita could be higher, the country might have also over-built housing, over-invested in infrastructure and underfunded retirement plans to serve statistical phantoms. The future can be seen in the northern city of Weihai, where deaths began exceeding births in 2019. Property sales measured by area plunged 40% and government income dropped 12% that year. Public debt including government financing vehicles rose to over 700% of fiscal revenue in 2020, Guangfa Securities estimates.

The Chinese Academy of Social Sciences estimated the roughly $1 trillion held in urban pension funds may be exhausted by 2035. That’s partly due to officials looking the other way while companies short-changed contributions. The shortfall can be plugged somewhat by transferring government equity stakes, which Beijing has begun to do. Retirement ages can be raised too.

But economically there are few substitutes for children. Eliminating birth limits might help, but officials seem terrified of allowing poor people to have large families. That leaves clumsier means, like subsidies or taxing childless women. Having cashed in its demographic dividend early, it may be too late for China to avoid a looming population cliff.
Source: Reuters (Editing by Pete Sweeney and Sharon Lam)