Addressing China’s Population Ageing: Quantitative Vs

Eclectic Qualitative Approach

Charles Kwong
School of Arts and Social Sciences
Hong Kong Metropolitan University

National Education Series

19 Oct 2022
Education Bureau
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Acknowledgement
The work described in this paper was fully supported by the
Public and Social Policy Research Centre, which had been
established and supported by a grant from the Research Grants
Council of the Hong Kong Special Administrative Region,
China (UGC/IDS16/18). Research assistance by Ms. Ivy Chan
is very much appreciated.
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Outline
1. Introduction
2. Population Ageing: A Snapshot
3. The Growth Bottlenecks: Labour Productivity, Capital Efficiency and Total Factor Productivity
3.1 Labour Productivity Growth
3.2 Capital Efficiency
3.3 TFP-Innovation Paradox
4. From One-Child Policy to Three-Child Policy: Quantitative Vs Eclectic Qualitative Approach
4.1 Quantitative Approach
4.1.1 Relaxation of Birth Policy
4.1.2 Raising Retirement Age
4.2 Eclectic Qualitative Approach
5. Conclusion
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1
Introduction
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Shrinking 120 million in 1997 to about 25 million in 2015

surplus labour (Purdy, Li, and Light 2014: 4)

Median age rose from 29.8 in 2000 to 38.4 in 2020

Population while share of population aged 60 and above
ageing climbed from 10 percent to 17.4 percent for the
same period (Statista 2021a)

Declining birth natural growth rate of population to an

rate since 1987 unprecedented low of 3.34 in 2020

Fall in labour force – negative impact on economic growth

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▸ It is argued that waning growth of labour force may not jeopardize

China’s long term growth if labour productivity growth (LPG), growth
capital efficiency and total factor productivity (TFP) are substantial
enough to counterweigh the potential negative impacts of shrinking
labour force on economic growth.

▸ Estimates indicate that LPG, capital efficiency and TFP have been
falling

▸ Quantitative Vs Eclectic Qualitative Approach to Population Ageing

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2
Population Ageing:
A Snapshot
 Figure 1 China’s Birth Rate, Death Rate and Natural Growth Rate of Population
8 1978-2019 (%)
25
23.33

20

16.61

15

10.48

10

5 3.34

Birth Rate Death Rate Natural Growth Rate of Population

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Table 1 China’s Life Expectancy at Birth
Total Male Female
1960 43.7 42.4 45.2
1978 65.9 64.5 67.3
2019 76.9 74.8 79.2
Source: The World Bank (2021)

▸ Falling surplus labour

▸ One-child policy implemented since 1980
▹ birth rate peaked at 23.33 percent in
1987, diminishing since then, and
reached a new low of 10.48 in 2019
▸ Rise in life expectancy
 Table 2 Projected Proportion of Population Aged 60 and Above
10
in China, U.S. and Japan (percent)

China U.S. Japan

2017 17.3 21.8 27.8
2025 20.0 25.1 30.0
2033 25.0 26.5 32.0
2050 33.3 27.9 37.7
Source: Caixin (2018)
▸ Pace of population ageing accelerates
▸ China’s share of old age population (17.8 in 2020)
has already been at the levels of Japan and South
Korea in 1992 and 2015 respectively “China is getting old
▸ Japan’s GDP per capita in 1992: US$31,376 before getting rich”
South Korea’s GDP per capita in 2015: US$36,452
China’s GDP per capita: US$10,839 in 2020
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3 The Growth Bottlenecks:

Labour Productivity, Capital
Efficiency and Total Factor
Productivity
 Figure 2 China’s Labour Force 1978-2019
12 90000 18

80000 16

14
Labour Population (10,000 persons)

70000

12
60000

Growth Rate (%)

10
50000
8
40000
6
30000
4

20000
2

10000 0

0 -2

Labour Force* Growth Rate

Notes: *Labour force refers to the population aged at or above 16 who is participating in or willing to participate in economic activities.
**Data on economically active population from 1990 to 2000 are estimated on the basis of the 2000 National Population Census and
the annual Sample Survey on Labour Force. Therefore, figures since 1990 are not strictly comparable with those from 1978 to 1989.
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3.1 Labour Productivity Growth

Labour Real Wage
Year Productivity Growth LPG - RWG
▸ Declining labour force (i.e. quantity Growth* (LPG) (RWG)
of labour) does not necessarily 2008 9.30 10.7 -1.4
2009 9.02 12.6 -3.58
decelerate economic growth if rise
2010 10.24 9.8 0.44
in labour productivity is substantial
2011 9.15 8.6 0.49
enough to counterweigh the negative 2012 7.46 9.0 -1.54
impact of sinking labour force. 2013 7.38 7.3 0.08
2014 6.93 7.2 -0.27
2015 6.65 8.5 -1.85
2016 6.49 6.7 -0.21
2017 6.75 8.2 -1.35
Table 3 China’s Labour Productivity and 2018 6.67 8.6 -1.93
Real Wage Growth 2008-2019 2019 6.26 6.8 -0.54
Note: *Labour productivity is calculated by dividing the real GDP by number of workers.
 Year TIFA Growth (%) TIFA/GDP
14 1995 20019.3 22.29 0.33
1996 22913.5 14.46 0.32
1997 24941.1 8.85 0.31
1998 28406.2 13.89 0.33
1999 29854.7 5.10 0.33
2000 32917.7 10.26 0.33
▸ Labour productivity growth (LPG) is 2001 37213.5 13.05 0.34
2002 43499.9 16.89 0.36
falling, though workers have more capital 2003 55566.6 27.74 0.40
(TIFA) and technology to work with 2004 70477.4 26.83 0.44
2005 88773.6 25.96 0.47
▸ Real wage growth (RWG) is rising 2006 109998.2 23.91 0.50
▸ Vanishing competitiveness in labour 2007
2008
137323.9
172828.4
24.84
25.85
0.51
0.54
intensive production 2009 224598.8 29.95 0.64
2010 251683.8 12.06 0.61
2011 311485.1 23.76 0.64
2012 374694.7 20.29 0.69
2013 446294.1 19.11 0.75
2014 512020.7 14.73 0.80
2015 561999.8 9.76 0.82
Table 4 Total Investment in Fixed Assets 2016 606465.7 7.91 0.82
2017 641238.4 5.73 0.78
(TIFA) 1995-2019 (100 million yuan)
2018 645675.0 0.69 0.71
2019 560874.0 -13.1 0.57
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3.2 Capital Efficiency

Table 5 Debt-to-GDP Ratio 2006-2020 (percent)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Corp* 107 97 96 120 121 120 131 141 150 163 166 160 151 151 162
Govt 26 29 27 35 34 34 34 37 40 42 45 47 36 38 46
HH 11 19 18 24 27 28 30 33 36 39 44 48 55 56 62
Total 144 145 141 179 182 182 195 211 226 244 255 255 242 245 270
*Corp=Corporate debt; Govt=Government debt; HH=Household debt
Source: Bank for International Settlements, quoted from China Power Team (2017); Lee (2020)

▸ Debt-to-GDP ratio rose remarkably after 2008 Global Financial Crisis (GFC)
▸ 4-trillion stimulus plan after 2008 GFC created much overcapacity
▸ Higher TIFA/GDP and Debt-to-GDP ratio indicates that more capital and credits
are needed to generate one unit of GDP (i.e. diminishing capital efficiency)
▸ LPG and capital efficiency are not robust enough to counterweigh the negative
impact brought about by shrinking labour force
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3.3 TFP – Innovation Paradox

▸ The remaining source of economic growth for China thus falls on the rise in
total factor productivity (TFP) which captures the contribution by technological
innovation, institutional factors and the efficient use of factor inputs

▸ TFP growth slowed from 2.8 percent in the decade before the global financial
crisis to 0.7 percent in the post crisis period 2009–18 (Brandt et. al. 2020)

▸ Liu (2017): TFP growth peaked at 8.2 percent in 1995 and 8.0 percent in 2003,
and declined continuously since then. Though there is a rebound of 7.6 percent
2007, it shrunk remarkably to near zero growth in 2014
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▸ China’s TFP growth is in stark contrast with its recent rise in global innovation ladder
▹ ranked 21 in 2017 and climbed remarkably to 15 among 105 countries in 2020
according to an integrated innovation index compiled by Bloomberg, which was based
on seven weighted metrics in innovation-related area

▸ China’s spectacular jump in ranking was largely caused by its notable rise in patent activity
▹ ranked number two among all countries (Ghosh 2020)

▸ Another representative ranking, the Global Innovation Index (GII) released by the United
Nation’s World Intellectual Property Organization (WIPO) generated similar result in 2020
▹ China was ranked 14 in GII
▹ scored high in patents, utility models, trademarks, industrial design applications
and creative products exports

China’s achieved a new record of 1.7 million of local

patent in 2018 (Xinhua 2019)
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▸ However, China’s patent registration overseas has far lagged behind other countries
▸ The quality of patents can be more accurately gauged by two measures

net earnings from Distribution of Triadic Patent Registration in

No. of triadic selling intellectual 2016

patent property rights

(IPR) 28.6% 31%

▸ Triadic patent registration requires joint

recognition in the largest global technology
markets:
▹ the Japan Patent Office (JPO) 6.9%
▹ the United States Patent and
Trademark Office (USPTO) 8.1%
▹ the European Patent Office (EPO) 25.4%
Japan US Germany China Others
19 ▸ Another measure of the quality of patents is the net earnings from IPR.

net earnings from

No. of triadic selling intellectual
patent property rights
(IPR)

▸ In terms of IPR earnings,

▹ China spent US$185.2 billion to purchase IPR from overseas markets
▹ but China’s sales of IPR only generated US$12.2 billion from overseas
sales over the period 2008-2017
▸ The US and Japan remain to be the main gainer in IPR transactions
▹ The US earned US$128.4 billion in 2017
▹ Japan earned US$41.7 billion in 2017
 ▸ Both the figures on triadic patents and net earnings from IPR indicates that
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▹ China’s patent competitiveness is still limited
▹ overseas patents still constitute a major element in its production and
product development
▸ It is also worth noting that among the three categories (invention, utility model
and design) of China’s local patent registration during 2000-2016:
Distribution of Registered Patent

19.3%

44.5%

36.2%

Utility Model Patents Design Patents Invention Patents

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▸ The pattern of patent registrations reveals that the rapid rise in number of
patents in China did not necessarily have proportional impact on
technological innovation (Santacreu and Zhu 2018)

▸ China’s patents focus on improving product design and production

process instead of creating an innovation breakthrough that can generate a
brand new product or industry

China’s technological innovation has not been very

conducive to enhance productivity
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4 From One-Child Policy to

Three-Child Policy:
Quantitative Vs Qualitative
Approach
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4.1 Quantitative Approach

4.1.1 Relaxation of Birth Policy

Relaxation of Abolition of Implementation of

One-Child Policy One-Child Policy Three-Child Policy
(2013) (2016) (2021)

▸ Reluctance to give birth to second child, not to

mention the third: high cost of raising a child,
change in fertility culture, fall in the number of
New low in birth rate
women of childbearing age
(10.48 in 2019) and
▸ It’s easier to use “stick” to control birth (One- fertility rate (1.3 in 2019)
Child Policy), but difficult to use “carrot” to
encourage giving birth
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4.1 Quantitative Approach

4.1.2 Raising Retirement Age

Gradually raise retirement age

▸ Apposition from the older employees
▹ raises their contribution to retirement pension
▹ but reduces their amount retirement benefits
▸ Apposition from the younger employees
▹ undermine upward mobility
▸ Delay/alleviate the deficit of social insurance system
▹ but have little impact on labour productivity
▸ Reduce grandparents’ support to take care of grandchildren
▹ lower the incentives to give birth
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4.2 Eclectic Qualitative Approach

▸ Enhancement of quality education
▹ elite (i.e. key universities) higher education, measured in terms of the
number of university graduates under the 211 project (100 top
universities in 21st century), positively contribute to firm level
innovation, measured in terms of patents registered, but vice versa for
non-elite education (Pan 2020)
▸ Focus on invention patents with triadic registration
▸ Gradual relaxation of hukuo system
▹ allow children of migrant workers more accessible to higher education in
cities. Currently there are about 100 million children of migrant workers
(China Labour Bulletin 2021)
▸ More financial resources should be channeled to projects with higher returns
(i.e. higher ROE for private enterprises)
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Table 6 Major Indicators of State-owned Enterprises
and Private Enterprises
2007 2012 2016 2019
SOEs PEs SOEs PEs SOEs PEs SOEs PEs
Number of
20,680 177,080 17,851 189,289 19,022 214,309 20,683 243,640
Enterprises
National Total
Assets 35,304 76,842 108,587 120,587
(billion yuan)
Total Assets of
Enterprises 15,819 5,330 31,209 15,255 41,770 23,954 46,968 28,283
(billion yuan)
Assets/
Enterprise 765.0 30.0 1,748.3 80.6 2,195.9 111.8 2,270.9 116.1
(million yuan)
Total Profit
1,080 505 1,518 2,019 1,232 2,549 1,606 2,065.1
(billion yuan)
ROE (%) 6.8 9.5 4.9 13.2 2.9 10.6 3.4 7.3
Source: China Statistical Yearbook 2008; 2013; 2017; 2020 (Table 13-1; 13-5; 13-7)
Available at: http://www.stats.gov.cn/tjsj/ndsj/2020/indexch.htm (Accessed on 16 June 2021)
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5
Conclusion
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1. China’s population ageing has been accelerating
2. Gradual shrinking of labour force negatively impacts long term growth
3. Pro-child policy (quantitative approach) may not be effective (evidence
in China and elsewhere, e.g. Japan)
4. China needs to adopt an eclectic qualitative approach to enhance
productivity

enhance
investment in focus on
education for raise capital
quality invention
children of efficiency
education patents migrant workers
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We use plenty of resources to

lengthen people’s life, and even
more resources to address the
issues of population ageing.
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Thank you!