2045 – China

CHAPTER 1 : WHY CHINA’S DEMOGRAPHIC FUTURE? 20

• Despite changes to the ‘One-Child Policy’ (to a Three-Child Policy’), China’s population will probably peak in 2028 at 1,433 million persons and then decline to 1,354 million by 2045.
• Driven by ongoing rural-to-urban migration, the total urban population is projected to increase from 857 million in 2020 to 1,105 million in 2045, from 61% to 82% of the total population.
• Nationally, all the lifecycle/age segments under 40 showed no significant growth in absolute size in the last decade, and they will not in the next 25 years. China is not a growing youth market.
• In 2020, it is estimated that 50% of the total population of China is 40 years of age or older. By 2045 one in four persons in urban China will be over 64 years of age.
• The ‘Aged Segments’ (40 years and above) growth rate slows after 2030 and stops after 2040. China reaches peak aged in 2042.
• The high growth, high spend consumer segment of Urban Working Age Empty Nesters (40% of all adults) shows little growth to 2034 and then declines thereafter. This has implications for total consumer spending in China.

Births and Population Change

• Relaxing the One-Child Policy to a Three-Child Policy will not offset the decline in the number of couples of childbearing age. Even if the birth rate lifts by 33%, total births will decline from 16 million pa in 2019 to 13 million pa by 2045.
• The inevitable decline in the number of women of childbearing age is a more significant determinant of the trend in total births to 2045 than the birth rate.
• The cumulative difference in total births between 2024 and 2045 between the optimistic scenario (birth rate of 58 in 2024) and conservative scenario (birth rate of 45 in 2024) is 74 million persons by 2045, in the context of 1.4 billion persons is not significant.
• Even the most optimistic scenario regarding birth rates will not offset the increase in deaths. As a result, China’s total population will stabilize and then decline slowly through 2045.
• The relaxation of the One-Child Policy to a Three-Child Policy will not reverse the decline of the working-age population even by 2045.
• The gender bias in births over the last decade has been growing, and the issue will be important by 2030 and undoubtedly serious by 2045, with 28 million excess males of marrying age.
• In 2020, an estimated 56% of households did not have a young person (under 20 years of age). By 2045, this percentage is projected to be 71%.

Urban Households

• Between 2020 and 2045 the growing urban population will require an average of 4.1 million additional housing units per annum which is a growth rate of 1.2% per annum
• In 2020 40% of urban households have only two people. Only 11% have more than 4 people.

Education

• The introduction of the One-Child Policy in 1979 enabled the introduction of compulsory education for all 6—to 12-year-olds in 1984, which in turn enabled people to move to more productive tertiary-level jobs and enabled China to move out of poverty.
• Based on current enrolments and education levels of the adult population, it is forecast that by 2045, 96% of the adult population will have reached Lower Secondary or better, and 52% will have Upper Secondary or Vocational
• The education level of China’s labour force is improving significantly, but it is not a unique advantage. Other countries have cheaper labour costs but achieve similar education/skill levels. China’s advantage lies in its investment in the infrastructure behind each worker. That is unique.
• Education is hard to achieve, and many countries are so far behind in this dimension that they will never be a challenge to China regarding economic potential. But…..

Labour Force

• The urban working-age population was 682 million in 2020 and is projected to reach 832 million by 2040, after which it started to decline.
• China has no spare human capacity. The inevitable decline in the working-age population and already high propensity to be employed means there will be an inevitable decline in the total employed population.
• However, all of that decline will be in the rural labour force. In the last decade, the rural labour force declined by 126 million persons. This is not bad news, as the decline results from people moving to more productive urban work while enabling agricultural work to become more efficient.
• The urban labour force (which is three times more productive than the rural labour force) continues to grow in number to 2034 – then levels out.
• The projected reduction in the number of workers per household (even in urban areas) means real household incomes will not increase at the same rate as wages.

Demographics and GDP

• The demographic profile of China is a critical determinant of its GDP growth. Even though productivity per worker is increasing (due to improved education profile and fixed capital investment per worker), it is increasingly offset by the inevitable decline in the number of workers (employed persons)
• Fixed Capital Investment per annum is projected to decline towards the global norm of 25% of the previous year’s Gross Domestic Product by 2045. For the last decade, it has averaged 46%. This decline will happen partly because of less need to create jobs to employ the growing urban population fully.
• Projected slower growth in productivity per worker reflects the slower improvement in the overall education profile of the labour force (due to fewer young, better-educated entrants) and reduced fixed capital investment. This means productivity per worker (GDP per worker) is projected to grow by 5.4% pa to 2030 and 3.4% pa to 2045. This compares with 6.8% p.a. for the decade to 2020 (or 7.7% p.a. for the decade to 2019 – i.e., pre-pandemic).
• Total real GDP annual average growth rates are projected to be 5.1% p.a. from 2021 to 2030 and then 2.7% to 2045. This compares with 7.4% for the period 2010 to 2019.

Household Incomes

• The projected trend in total real GDP per worker (productivity per worker) multiplied by the share that is paid in wages (60%) and the number of workers per household (declining) indicates that average urban household income will lift from Rmb 158,660 in 2020 to reach a projected Rmb 232,983 (2020 values) in 2030 and then to 314,418 by 2045 (2020 values). That is a growth rate of 3.5% pa to 2030 (from 2019) and 2.0% pa to 2045.
• This increase in average income for urban households means the concept of the middle class in China is a moving target. In 2020, ‘middle income’ was defined as Rmb 90,000 to Rmb 120,000, with 35% of urban households falling into that range and 38% with an income above that range. By 2045 the middle-income range will be Rmb 180,000 to Rmb 300,000 (again all in 2020 values)
• This, combined with an ageing population, means that exceptionally high growth rates are projected for older, higher-income segments. For example, the number of persons aged 40 to 64 living in an urban household with an income over Rmb 120,000 (US$20,000) is projected to increase from 179 million to 315 million in the next decade, a growth rate of 5.8% pa.

Household Expenditure

• Total household expenditure grew at an extremely high rate of 8.8% per annum for the last decade to 2020. But this changes quite dramatically after 2020. From 2020 to 2030 it is projected to grow at 5.2% per annum and then drop to 2.7% per annum through to 2045.
• This reflects multiple factors, including the population’s ageing (and change in lifestyle), slower household income growth, and slower population/household growth. All these trends are inevitable.
• Just six provinces account for 37% of urban household expenditures and 74% of higher-income household expenditures (over Rmb 400,000 pa).

Health

• The combination of an increasing number of persons over 40 years of age and the increased probability of a health condition once aged over 40 years means that the total demand for health care could increase by 63% by 2045
• Spend-per patient increased at the rate of 3.4% per annum over the last decade. If this rate of increase (improvement) continues, then that combined with the projected increase in demand indicates total health spending would grow by 6.2% per annum to 2030 and 4.9% per annum to 2045 (and increase from 5% of GDP in 2020 to 7.7% by 2045)
• Projecting current trends in private (household) expenditure on health and that of the Government indicate that the Government’s share of health expenditure will increase from 60% (2020) to 78% by 2045. This is in line with many other developed countries.

CHAPTER 1 : WHY CHINA’S DEMOGRAPHIC FUTURE? 20

• Introduction 20
• The structure of this book 23
  • Chapter 2: The Present 23
  • Chapter Three: Overall Population Trends 26
  • Chapter Four: Urban and Rural Populations 28
  • Chapter Five: The Evolving Consumer and Household Profile 31
  • Chapter Six: Education 32
  • Chapter Seven: The Labour force. 34
  • Chapter Eight: Demographics and GDP 37
  • Chapter Nine: Household incomes 39
  • Chapter Ten: Household Expenditure 42
  • Chapter Eleven: Health Care 45
  • To conclude 46