After years of uncontrolled population growth under the Maoist regime, the Chinese government sought to reduce population growth, as it was perceived as a major obstacle to economic growth. This was the main reason for implementing the so-called ‘one child policy’ in 1979. This policy was successful in cutting China’s fertility rate from around five children per women in the 1970s to around 1.6 between 2000 and 2010. However, this rapid reduction in fertility rates, in combination with a steeply rising life expectancy, caused a severe distortion of the population pyramid. The share of the population over 60 years of age is now projected to rise from 17.4 percent in 2020 to 30 percent in 2040, while the fertility rate will continue to remain low. This trend is reflected in the old-age dependency ratio, which expresses the relation of people at retirement age to the working age population and is forecast to increase from 17 percent in 2020 to 53 percent in 2060.
This demographic shift is already evident in the development of the labor force, which began to shrink in 2015, for the first time in decades. This is of special importance to the government, as China’s economic model so far was based, to a high degree, on its cheap and abundant labor force. Although major steps have already been undertaken by the government to raise productivity and shift the economic model from labor intensive production to more value-creating economic activity, this restructuring will be even more important in the future.
The ongoing improvement of the public pension system is another challenge for the Chinese government. In the past, only urban employees were insured in the pension system. Rural employees and farmers in their old age had to rely mostly on the help of relatives. In 2010, the government initiated an additional public pension system for all people not covered by the insurance for urban employees. This basic insurance has been greatly expanded in recent years and in 2018 it already covered most of the formerly uninsured population. However, the pensions paid by this basic insurance are considerably low and the government will have to make strong efforts to support a certain portion of the ageing population whose pension is not enough to meet the cost of living and do not have relatives to rely on.