China's population peak hastens fiscal reckoning

The Chinese Academy of Social Sciences estimated the roughly $1trln held in urban pension funds may be exhausted by 2035

  
A woman walks past Drum Tower during morning rush hour as Beijing, China, is hit by a sandstorm, March 15, 2021. Image used for illustrative purpose

A woman walks past Drum Tower during morning rush hour as Beijing, China, is hit by a sandstorm, March 15, 2021. Image used for illustrative purpose

REUTERS/Thomas Peter

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

HONG KONG  - 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.

CONTEXT NEWS

- China’s population grew last year, the National Bureau of Statistics said in a brief statement on April 29 without elaborating.

- On April 27, the Financial Times reported that China was set to report that its population fell below 1.4 billion last year from 2019, in the first decrease in five decades, citing unnamed sources. The population number will not be released until government departments have reached a consensus on the data and its implications, the story said.

- The NBS has delayed publishing the once-in-a-decade census data conducted last year, which was due to be announced in early April. A NBS spokesperson said more preparatory work was needed.

- China is planning to publish the data in early or mid-May, Chinese media Yicai reported on April 29, citing unnamed sources.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by Pete Sweeney and Sharon Lam) ((yawen.chen@thomsonreuters.com; Reuters Messaging: yawen.chen.thomsonreuters.com@reuters.net))

More From Global