China Demographics - From dividend to drag - 13 Sep 23

Economics Research
13 September 2023
China Demographics
From dividend to drag

FOCUS
China’s population is shrinking sooner and faster than
expected. This rapid ageing carries profound economic
consequences, and the government is taking urgent steps to Yingke Zhou
+852 2903 2653
address it. We analyse China’s demographic and census data to yingke.zhou@barclays.com
Barclays Bank, Hong Kong
offer scenarios for potential economic growth and different
Ying Zhang
drivers of GDP through 2030. +852 2903 2652
ying.zhang3@barclays.com
China is no longer the world’s most-populous country. The absolute decline in China’s Barclays Bank, Hong Kong
population began in 2022, earlier than many international institutions forecast (UN, IMF, OECD),
providing a further structural headwind to growth. The shrinkage underscores how rapidly
China’s population is ageing, a trend widely expected to continue even as the government takes
policy steps to address declining fertility and birth rates. The changing demographic profile will
weigh on potential growth by reducing the size of the labour force, further eroding
consumption, while requiring increased spending on healthcare and pensions.
In this note, we examine China’s demographic data to: 1) project China’s total population over
the next decade; 2) identify different population trends by age group; and 3) analyse the
economic/growth implications of demographic changes under three different scenarios.
Executive Summary
Our key findings are the following:
• Our analysis of China’s demographic data suggests the total population may shrink by
~60mn in the next decade, reaching 1.35bn in 2033. That reduction is almost equivalent to
the total population of the UK and would see China’s population return to a level last seen in
2011.
° In particular, we think falling marriage rates and the decline in the number of women of
childbearing age will lead births to decline from ~15mn, on average, in the past decade
to an average of ~7mn in 2023-35. Even as the government introduces policies to arrest
the decline, we think the average fertility rate will drift lower from its last reported level
of 1.28 in 2020, to below 1 (significantly below the replacement level of 2.1).
° The issue is a focus for government, with President Xi Jinping in October 2022 pledging
to “improve the population development strategy, establish a policy system to boost
birth rates, and bring down the costs of pregnancy and childbirth, child rearing, and
schooling.”1
1
“Hold High the Great Banner of Socialism with Chinese Characteristics and Strive in Unity to Build a Modern Socialist
Country in All Respects,” Xi Jinping, Speech at the 20th National Congress, 16 October 2022
Please see analyst certifications and important disclosures beginning on page 26 .

Completed: 13-Sep-23, 13:36 GMT Released: 13-Sep-23, 15:45 GMT Restricted - External
Barclays | China Demographics
• China’s population is already ageing faster than other major economies (including Japan,
Germany and France), and the pace is set to accelerate from 2027. We estimate by 2030
more than 20% of China’s population will be older than 65, making the nation a so-called
super-ageing society.
° The shift to super ageing from deep ageing (where 14% of the population is over 65) will
have taken just nine years. For comparison, it took 11 years for Japan (1994-2005) to
transition, while it took 36 years and 29 years, respectively, for Germany (1972-2008) and
France (1990-2019). Moreover, the median age of the population is set to jump to 47 in
2035 and 54 in 2050, from ~39 in 2022 and ~26 in 1995.
• Based on historical birth records, we estimate the decline in China’s working-age

population (15-59 age cohort) will accelerate from 2023, to an average decline of 11mn
annually through 2035 versus an average of 4mn in the past decade.
° Meanwhile, rising youth unemployment could reduce productivity and growth

potential, and further undermine consumption, as well as discourage younger people
from entering the labour force.2 Labour-force participation rates are trending
downward, dropping to 66.9% in 2022 from 67.4% in 2019.
• In view of language, cultural and social barriers, we think China would find it challenging to
resort to immigration to help offset low birth rates and replenish the working-age
population. Unlike the US and the EU, which have positive net migration, China has seen
persistent migrant outflows since 1950, with a cumulative decline of ~17mn during 1950-
2022. As of 2020, China was home to just 1mn immigrants, about 0.1% of its population,
significantly below the ratios in Germany (19%), the US (15%) and the UK (14%).
• In our base case scenario, we expect potential growth to continue to fall to 3.0-3.5% on
average in 2023-30 (with growth slowing to ~2.5% in 2030) from ~4.5% in 2021-22 due to a
shrinking workforce, slower total factor-productivity growth, and diminishing return on
capital. Our results are broadly consistent with findings by researchers at the Asian
Development Bank3 , IMF4 and Federal Reserve of New York.5 Government investments in
transitioning the economy to new growth drivers such as AI will help to cushion growth.
• On the expenditure side, our base case expects consumption to grow at 3.0-3.5% annually
(in real terms) through 2030, compared with ~8% growth during 2015-19 and ~3.5% average
during 2020-22. The slower growth in consumption reflects: 1) the political and economic
difficulties in redistribution of income across sectors; and 2) less favourable fundamental
factors, including elevated household debt and a shrinking population.6
• We expect (high-tech) manufacturing investment to outperform, rising by 5-6% annually on

average through 2030. We expect infrastructure investment to register 2-3% growth
(supported by new infrastructure) and see real-estate investment declining by 1-2% on
average through 2030.
• We also explore an upside scenario, where China implements additional growth-enhancing
2
“China: Youth unemployment - just hang in there”, 14 July 2023
3
“ADB East Asia Working Paper Series: The Long-Term Growth Prospects of the People’s Republic of China,” Peschel and
Liu, ADB, 2022. These authors forecast China’s growth averaging 5.3% in 2020-25, 3.5% in 2026-2030, 2.7% in 2031-35, and
2% in 2036-2040.
4
“People’s Republic of China: Selected Issues: Sustainable and Balanced Growth in the Longer Term,” IMF Asia and Pacific
Dept, 10 Feb 2023. In this analysis GDP growth estimates fall to an average of ~4% in 2023-27 and ~3% for 2028-37.
5
“China’s Growth Outlook: Is High-Income Status in Reach?” Higgins, Federal Reserve Bank of New York, Economic Policy
Review 26, no. 4, October 2020. The ‘Pretty Good’ scenario in this analysis saw growth per capita average 3.8% for 2018-28
and 2.1% in the decade to 2038.
6
“China Consumption: Marking down expectations”, 29 July 2022
13 September 2023 2
reforms and effective pro-consumption policies compared with our baseline. This would
lead to an average growth rate of 4.0-4.5% in 2023-30, with consumption growth of ~5%.
• Risks to our base case would include a deeper and longer collapse in real estate investment,
a larger household debt overhang, and lower-than-expected growth in total factor
productivity. In a scenario where multiple risks were to materialise, which is not our base
case, China’s average growth rate could potentially fall below 1%, with consumption growth
staying at 2~3%7.
Demographic challenges beget economic challenges

Favourable demographic trends were a major contributor to China’s remarkable growth over
the past four decades, helping the country become the world’s largest manufacturing centre,
the largest consumer market for autos and electronic products, and the largest housing market.
However, China is now seeing a fundamental shift in its demographic trends, with a shrinking
population and rapid ageing (Figure 1). In particular, the distribution of the population pyramid
has been transitioning from a bottom-heavy one (more young people) to a top-heavy one (more
elderly).
Figure 1. China’s population is set to shrink in coming decades
Three Years of "Later, longer, fewer" policy Population growth rate % GDP growth rate % (RHS)
% Difficulty is promoted %
3.5 One-child 30
One-child policy is
3.0 policy becomes constitutional
introduced Two-child policy is introduced
2.5 20
2.0 10
Three-child policy is
1.5
introduced
1.0 0
0.5
0.0 -10
-0.5 -20
-1.0
Projection
-1.5 -30
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Source: Wind, Barclays Research
The trend of a fast-ageing population has become more visible and is becoming a cause for
concern as the number of newborns plunges due to falling fertility rates and a declining number
of women of childbearing age. An older population also imposes significant healthcare and
pension costs (Figure 2 and Figure 3).
Meanwhile, the working-age population has been shrinking rapidly, posing mounting
challenges to the economy. China is likely to run out of surplus labour in rural areas, with the
urbanisation rate already slowing. This could significantly erode economic growth and
competitiveness.
Against the backdrop of China’s shrinking working age population and persistent geopolitical
tensions, we have already seen supply-chain relocation (away from China to other EMs)8.
Moreover, the declining population may 1) hold back aggregate-consumption growth, even as
China’s per capita consumption advances; and 2) weigh on housing demand, and therefore real-
estate investment.
7
This is a similar outcome to the ‘Humdrum’ scenario in Higgins, cited above. There, real per capita income growth
averages 2.7% in 2018-2027, but averages just 0.9% from 2028 to 2038.
8
“Chinese companies are moving supply chains out of China to manage risks, with India, Malaysia and Indonesia
benefiting”, SCMP, 23 April 2023
13 September 2023 3
Here, we examine China’s own population and census data to try and estimate China’s potential
growth (production side of GDP) in the next decade given the demographic changes. In
addition, we look into the expenditure side of GDP, and discuss different drivers (mainly
consumption and investment) of growth through 2030.
Figure 2. Pension-fund deficit has widened Figure 3. Old-age dependency ratio is expected to exceed 40% by
2035
% Pension fund deficit (RHS)

CNY trn Italy Spain
Fiscal subsidies to pension fund as % of tax revenue France UK
0.2 % Germany US
6 Japan China, Barclays
0.0 75
Forecast
5 0.2 65
0.4 55
4
0.6 45
3 0.8 35
1.0 25
2
1.2 15
1 1.4 5
2002 2006 2010 2014 2018 1990 2000 2010 2020 2030 2040 2050
Source: Wind, Barclays Research Source: UN, Wind, Barclays Research
To gauge potential growth, we rely on a standard Cobb-Douglas production function

framework9:
Y(t)=A(t)*K(t)α*(L(t)H(t))1-α.
Where:
• Y = real GDP.
• A = total factor productivity (TFP).
• K = capital stock.
• L = number of employees.
• H = human capital.
• α = elasticity of output to capital10.
• 1-α = elasticity of output to labour.
• t = years.
According to IMF estimates, China’s potential growth has already fallen from above 10% in 2005-
07 to less than 5% recently due to weaker productivity growth, less productive capital, and a
shrinking workforce. For 2021, the IMF estimated potential growth of 4.7%, with weaker TFP
growth explaining the largest part of the drop from its peak.
We explore three scenarios: a baseline scenario, an upside scenario, and a downside scenario.
9
A similar approach was used in the analyses of the IMF, ADB and NY Fed, as cited above. The Cobb-Douglas Production
Function is commonly employed to provide estimates of economies’ potential growth. See discussion in “The production
function methodology for calculating potential growth rates & output gaps,” D’Auria et al, in European Commission
Economic Papers 420, July 2010
10
The elasticity of output to input factors is often approximated by their shares in incomes, as this is the case when firms
are profit-maximizing under perfect competition and the production function has constant returns to scale. In line with
the literature (see Albert and others, 2015), we thus use conventional coefficients 𝛼= 0.4 and 1 − 𝛼 = 0.6.
13 September 2023 4
Figure 4. China’s potential growth and inputs contribution breakdown with different forecast scenarios
%
Capital Labor TFP Human capital Potential growth (baseline) Better case Worse case
14
12
10
Forecast
8
6
4
2
0
-2
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 23 24 25 26 27 28 29 30
Source: IMF, Wind, Barclays Research
Figure 5. China’s consumption and investment growth in three scenarios

Consumption growth
2023-30 investment growth (%) gDP growth (%)
(%)
Baseline scenario 3 ~3.5 3 ~3.5 3 ~3.5
Upside scenario ~5 3.5 ~ 4 4 ~ 4.5
Downside scenario ~2 -1 ~ -2 <1
Baseline scenario
We expect potential growth to ease to 3.0-3.5% on average during 2023-30 (with growth slowing
to ~2.5% by end-2030), from ~4.5% in 2021-22 (Figure 4 and Figure 5).
We assume:
• Measured productivity enhancement from more application of AI, machine learning and
automation.
• Structural aspects of the economy remain stable (ie, limited SOE reform, for example).
• Retirement age remains stable.11
• Balance of consumption versus investment is little changed.
With a shrinking and ageing population, steady-but-slow TFP growth, and diminishing return on
capital, we expect potential growth to continue to ease to 3.0-3.5% on average across 2023-30,
with 2030 growth slowing to only ~2.5%. This outturn is similar to forecasts generated by
researchers at the ADB12, IMF13 and NY Fed14.
11
In February 2023, the official media, China.org.cn (under State Council), quoted a research report by Citic that China will
gradually raise everyone’s retirenment age to 65 by 2055 (see “China’s long-delayed plans to hike retirement age go viral”,
Bloomberg, 3 February 2023). Preivous efforts to raise the retirement age since 2012 have failed, with massive public
backlash helping to detrail the push.
12
“ADB East Asia Working Paper Series: The Long-Term Growth Prospects of the People’s Republic of China,” Peschel and
Liu, ADB, 2022. These authors forecast China’s growth averaging 5.3% in 2020-25, 3.5% in 2026-2030, 2.7% in 2031-35, and
2% in 2036-2040.
13
“People’s Republic of China: Selected Issues: Sustainable and Balanced Growth in the Longer Term,” IMF Asia and Pacific
Dept, 10 Feb 2023. In this analysis GDP growth estimates fall to an average of ~4% in 2023-27 and ~3% for 2028-37.
14
“China’s Growth Outlook: Is High-Income Status in Reach?” Higgins, Federal Reserve Bank of New York, Economic Policy
Review 26, no. 4, October 2020. The ‘Pretty Good’ scenario in this analysis saw growth per capita average 3.8% for 2018-28
and 2.1% in the decade to 2038.
13 September 2023 5
Labour and human capital

We consider the labour force to be comprised of people aged 15 to 59, with the official
retirement age set at 60. The labour force shrank by an average of 0.5% annually from 2012
through 2022 (Figure 6). We estimate based on birth data that the decline in labour force will
accelerate to 1.4% annually on average during 2023-30. Meanwhile, China’s labour force
participation rates were on a downward trend, dropping to 66.9% in 2022 from 67.4% in 2019. It
is worth highlighting that the participation rate gap between China and DM is narrowing (US:
61.9%, Germany: 61.5% and Japan: 62.3% in 2022, Figure 7).
Moreover, we see changes in youth motivation, values and lifestyles.15 Choosing between
contrasting lifestyle trends of 躺平 (lying flat), 内卷 (being overly competitive) and 苟住
(surviving through conservative play, or ‘hanging in there’) appears to have become a popular
mindset among Chinese youth since 2022. We note similar shifts in mindsets towards a
disinterest in employment, home ownership, interpersonal relationships had also happened
among youth in the US, Europe, South Korea and Japan in the past decade.16
This implies a risk that China could also follow in the US and Europe’s footsteps, with reduced
hours per worker in the future. Countering that, we assume human capital will continue
growing at its current rate (+0.3pp contribution) as suggested by the World Bank’s human-
capital index.
Overall, we estimate the drag from the reduced labour force on potential growth should
increase to 0.8pp on average during 2023-30, from a 0.3pp drag on average in the past decade.
Figure 6. China’s working-age population is set to decline at a faster Figure 7. ...along with declining labour-force participation rates
pace...
% China (labour force participation rate for age 15+)

Composition of population US
mn mn 80
0-14 60+ 15-59, rhs Japan
500 950 Germany
75
900
400
70
850
300
800 65
200
750 60
100 700
2011 2016 2021 2026 2031 2036 55
Note: Forecasts for 2023 and onwards 2002 2006 2010 2014 2018 2022
Source: Wind, Barclays Research Source: Wind, Barclays Research
Total factor productivity

TFP growth represents the proportional increase in output that would have occurred in the
absence of any input changes. It is calculated as a residual item by subtracting the contribution
of capital and labour from output growth. We estimate China’s TFP growth started to take off in
the 2000s following China’s WTO accession and SOE reform efforts, and peaked at 9% in 2007,
before the global financial crisis (GFC).
We think the resource misallocation stemming from the GFC-induced massive stimulus, slowing
of SOE reform and virtual plateauing of the SOE share may be contributing to slower TFP
growth in China. We estimate China’s TFP growth fell from the pre-COVID level of c.2% in 2019 to
an average of c.1.7% in the COVID period of 2020-22 (Figure 8).
15
“China: Youth unemployment - just hang in there”, 14 July 2023
16
“What is ‘lying flat’, and why are Chinese officials standing up to it?”, SCMP, 24 October 2021
13 September 2023 6
In the base case, we expect TFP growth to moderate to 1.5-2.0% on average in 2023-30 (versus
its pre-COVID level of 2%). This is in view of:
1. SOEs continuing to dominate domestic industries, which could delay an efficient

reallocation of resources from less-productive to more-productive sectors.
2. Some productivity boost from ongoing automation, and more application of AI, and
machine learning.
For comparison, the ADB estimated China’s potential annual TFP growth at 1.3% during 2020-
2040, while the IMF estimates China’s TFP growth would be 1-2% in 2022-37.
SOE reforms
In addition to the authorities’ repeated call for making SOEs “stronger, better and bigger” in
recent years17, we note the Party has also been enhancing its influence over the private sector
(which had higher productivity than SOEs) . In September 2020, the Party and the State Council
issued an opinion on strengthening “political thinking guidance of personnel” in the private
sector, reflecting a major reimposition of ideology on private business.18
While the authorities vowed to support private business in a bid to boost economic growth,19 we
are yet to see how effective the policies are, and do not think the private sector will scale up
capex investment, given that the weakness in domestic demand reflects more structural than
cyclical issues. It is worth noting that the gap between SOE-led fixed-asset investment growth
and private SOEs widened this year (Figure 9).
Figure 8. TFP growth was on a downward trend post gFC Figure 9. SOe investment outperformed private investment
%, total SOE assets share %

industrial TFP growth (rhs) % y/y Private FAI SOE FAI
71 10
firms' assets 30
67 9
Post GFC 25
63 8
stimulus
59 7 20
55 6 15
51 Slowed TFP growth amid 5
slowdown in SOE reforms 10
47 4
WTO 5
43 3
accession 0
39 2
35 1 -5
2000 2004 2008 2012 2016 2020 -10
Note: 2020-22 TFP growth is average data Jul-13 Jul-15 Jul-17 Jul-19 Jul-21 Jul-23
Technology
We think increased automation and more AI adoption will mitigate somewhat the drag from the
absence of substantial structural reforms. In Artificial Intelligence: Real but pricey opportunity
(6 June 2023), our equity strategists suggested tech and services-based businesses would be the
primary beneficiaries of AI adoption as, for example, generative AI tools are deployed in various
applications from content generation to drug discovery to software/services. They also examine
the history of major tech adoption cycles, and concluded that 1) technological advancements
over the past century have driven a massive boost to labour productivity; but 2) history shows
17
“Xi Jinping calls for China’s state-owned enterprises to be ‘stronger and bigger’, despite US, EU opposition”, 3 November
2020, SCMP
18
“CPC issues guidelines for strengthening united front work involving private sector”, 15 September 2020, Xinhua
19
“China Politburo targets boosting domestic demand, private sector”, Caixin, 24 July 2023
13 September 2023 7
that it actually takes a very long time for a single game-changing technology to materially raise
an economy’s potential growth rates. Mckinsey & Co estimate that AI could increase labour
productivity by 0.1-0.6pp annually through 2040.
Capital
By our estimates, China’s capital-stock growth has declined steadily in the past decade, slowing
from over 12% in 2010-12 to ~9% in 2018-22, with average pp contribution to GDP declining
from 6.2pp in 2010-12 to 3.6pp in 2018-22 (GDP average growth: 5.3% in 2018-22).
We expect capital-stock growth to slow further in the next decade in view of moderating
property investment, with the contribution declining to 2pp annually on average during 2023-
30.
Expenditure approach
While policymakers have called over the past decade for rebalancing the economy by shifting
towards consumption from investment, China’s consumption as a share of GDP fell to an 8-year
low of 53% in 2022. It had hovered at ~55% in 2015-21 (Figure 10). For consumption’s share to
rise, we think it is necessary to increase households’ share in gross domestic income, while
reducing the share that goes to corporates and government. However, the redistribution of
income across sectors is a politically and economically difficult process.
Consumption
Our base case expects consumption’s share to remain broadly stable at ~55% through 2030.
China will still depend heavily on investment, with investment’s share staying elevated at ~43%
and net exports to account for the the remaining ~2% during the same period. In our base case
scenario, we expect consumption to grow at 3.0-3.5% annually (in real terms) through 2030,
compared with ~8% growth in 2015-19 and ~3.5% average during 2020-22 (2022: 1.8%).
Our cautious views on China’s consumption also reflects our judgement that spending by
individuals will be held back by elevated household debt/GDP levels, stagnating household
incomes, and detrimental wealth effects from the property downturn.
In China Consumption: Marking down expectations (29 July 2022), we highlighted that Chinese
household debt has surged to 147% of household income this year, exceeding the peak level of
US households in 2008 (134%) and suggesting some painful adjustment ahead (Figure 11).
According to BIS data, Chinese household debt more than doubled versus GDP in the past
decade, peaking at 62% in Q4 2020 before levelling out. It is especially worrying that China’s
average household debt already exceeds the threshold of 60%, above which negative long-run
effects on consumption start to intensify.
13 September 2023 8
Figure 10. China’s consumption as a share of gDP has stalled Figure 11. Household debt build-up rivals that of uS pre-global
financial crisis
China's consumption share Investment Net exports

US household debt to disposable income
%
100% US household debt to GDP
180
90% China household debt to disposable income (2014-23)
80% China household debt to GDP (2014-23)
70% 140
60%
50%
100
40%
30%
20% 60
10%
0% 20
2014 2016 2018 2020 2022 2000 2003 2006 2009 2012 2015 2018 2021
Investment
The unchanged investment share in GDP implies investment growth of 3.0-3.5% through 2030,
versus ~6% in 2015-2019 and ~4% on average during 2020-22. Within investment, we expect
(high-tech) manufacturing investment to outperform, rising by 5-6% annually on average
through 2030. We expect infrastructure investment to register 2-3%, largely supported by new
infrastructure, while growth in traditional infrastructure investment (led by transport projects)
should slow.
Moreover, we expect real-estate investment to decline by 1-2% due to softer real demand from
the shrinking population and slowing pace of urbanisation (Figure 12), and the evaporation of
investment/speculative demand.
Amid a record downturn, the share of GDP contributed by China’s real-estate sector has been
shrinking in the past three years. The ratio of residential real-estate investment to GDP has
declined from 10% in 2020 to 8% in 2022 and 7.5% in H1 2023. However, that is still very high
compared with other major economies; it is about 5% in the US, and has been around 4% in
Japan (Figure 13).
An update of our more structural property-demand analysis (see China Economics: Housing: No
quick fixes, 13 October 2022) based on fundamental demand drivers points to a decline in
property-sales volume of 3-5% on average in 2024-30 following a 24% decline in 2022 and ~10%
drop in 2023 (Figure 14). Specifically, we divided China’s property demand into six categories:
1. Urbanisation.
2. Upgrading.
3. Shrinking household size.
4. Redevelopment of old housing stock
5. Commercial property
6. Investment.
We view the first four categories as consumption demand for property. They, along with
commercial property, collectively accounted for c.70% of total demand in 2021, and we expect
the importance of the first five categories to gradually decline in view of a shrinking population
13 September 2023 9
and slower increase in urbanisation rates. We expect relatively steady demand from upgrading
and shrinking household size.
However, we expect investment demand (c.30% of total demand in 2021) to by and large
disappear. We believe there may be a permanent shift underway in the Chinese housing market
since the length of the current downturn means that Chinese people now likely see risks in
home prices in the long term, rather than consider real estate as a one-way road to fast money.
This is bound to impact investment demand (see China Property: Prolonged pain, 7 September
2023).
Figure 12. Slowing urbanisation pace weighs on property investment Figure 13. China’s dependence on housing sector is still higher than
than in the uS and Japan
% y/y Property investment

%
Change in urbanization rate (rhs) Residential property investment as % share of GDP
40 2.0 %
35 1.8 12 China US Japan
30 1.6
25 1.4 10
20
1.2 8
15
1.0
10 6
0.8
5
0 0.6 4
-5 0.4
0.2 2
-10
-15 0.0 0
1999 2002 2005 2008 2011 2014 2017 2020 2023 1999 2002 2005 2008 2011 2014 2017 2020 2023
H1
Figure 14. elements of property demand projected out to 2030
mn sqm Urbanisation demand Upgrading demand Replacement demand
2,000 Shrinking HH size demand Investment demand Commercial property demand 30

Home sales volume (% y/y, rhs)
20
1,500
Forecast
10
1,000
0
500
-10
0
-20
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
-500 -30

New growth drivers
While the government since the trade war with the US has tried to play down “Made in China
2025” (a state-led industry policy), we note the leadership have placed a high priority on
innovation-driven development and tech self-reliance through advanced manufacturing (see
China: Party report highlights quality, innovation, and ‘people-centred’ philosophy, 19 October
2017).
We expect more pro-high-tech manufacturing policy in coming years, especially around

integrated circuits, biotechnology, robotics and artificial intelligence (Figure 15). The industry
policy could be in the form of mobilising SOEs, using government subsidies, and pursuing
13 September 2023 10
intellectual property acquisition to catch up with and then surpass western technological
prowess in high-tech industries. Moreover, we think resource allocation will increase in favour of
so-called new infrastructure, including: 1) information infrastructure (eg, cloud computing, data
centres, 5G, internet communication network infrastructure); 2) integrated infrastructure (eg,
charging stations for EVs, ultra-high voltage power transmission); and 3) innovative
infrastructure (eg, R&D institutions, innovation-focused industrial parks, see China: Pulling the
infrastructure lever, 19 May 2022).
Figure 15. China’s manufacturing ambition
2020 2025 2030
Biotechnology - advanced medical devices (DM)
New materials - strategic materials (DM)
Agricultural equipment (DM)
Power equipment (DM)
New energy vehicles (DM)
Railway equipment (FM)
Ocean engineering equipment & high-tech ships - high-

tech ships (FM)
Aerospace - general-purpose aircraft (GM)
Numerical control tools & robotics - robotics (DM)
New IT - integrated circuits (DM)
Note: DM- domestic market; 0% 20% 40% 60% 80% 100%

FM- foreign market; GM- global market
Market share
Source: “Made in China 2025” by State Council, Barclays Research
government efforts to combat ageing and shrinking population
“Efforts should be made to perfect the

strategy for population development in
the new era, understand, adapt to, and
guide the new normal of population
development, improve the overall quality
of the population, and maintain an
appropriate birthrate and population
size.”20
Against the backdrop of the deteriorating demographic situation, authorities at the

national and local levels have rolled out measures to tackle the nation’s rapid ageing
and shrinking population. Speaking at the first Central Commission for Financial and
Economic Affairs (CCFEA) in May 2023, President Xi said China will actively respond to
population ageing, develop the so-called silver economy and support child-bearing
and education.
20
Statement of Central Commission for Financial and Economic Affairs, chaired by President Xi Jinping, cited in “Xi urges
We think policy responses can be broadly classified into three groups: 1) improving
health care for the elderly, 2) countering the drag on the labour force by potentially
increasing the retirement age, and 3) introducing pro-fertility policies to boost birth
rates and reduce the burden of child-raising.
Elderly care:
The 14th Five Year Plan (2021-25) calls for expanding the supply of elderly care
services, improving health-support mechanisms for the elderly, and advancing the
innovative and integrated development of service models. It lists nine major
indicators, such as the number of elderly care beds and the ratio of nursing care beds
in elderly care institutions, to mobilize society as a whole to actively respond to
population ageing.
Retirement age:
The 20th Party Congress in October 2022 asked the authorities in charge of the
nation’s human resources to start considering when to raise the retirement age.
Premier Li Qiang said at the March 2023 NPC meeting that the government would
conduct rigorous studies and analyses of retirement-age reform. The current
retirement age is 60 for males, 55 for white-collar female workers, and 50 for blue-
collar female workers. In May 2023, the state-run Economic Daily called on authorities
to encourage more retirees to rejoin the workforce by calling for investment in
vocational training and improved regulations for elderly employment21.
Fertility policy:
China since 2021 has allowed couples to have up to three children, after exiting the
decades-old one-child policy in 2016. Authorities are actively seeking to reduce the
financial burden of child rearing, cracking down on the private-tutoring and online-
education sector, along with introducing measures to rein in home prices. Meanwhile,
local governments have introduced pro-fertility policies, including paid childcare
leave, cash transfers to families, and tax benefits. For example, the southern megacity
of Shenzhen plans to subsidize third-child families up to CNY19k (USD2.8k) over the
course of three years, while tech hub Hangzhou is giving new parents CNY20k, or
USD2.9k, as a one-off subsidy for having a third child this year.
See Appendix for more examples.
Upside scenario
We see potential for 4.0-4.5% growth through 2030
In the upside scenario, we assume China implements a set of growth-enhancing reforms and
pro-consumption policies compared to the baseline, including:
1. Implementation of SOE reforms to improve resource allocation and close the productivity
gap between state-owned and private firms in the manufacturing and tertiary sector.
2. More effective pro-FDI policy especially in the area of high-tech sectors that help spread
global frontier technologies to Chinese firms, and to accelerate the modernisation of
manufacturing, services and agriculture.
3. Nationwide retirement-age reform; lifting the retirement age to 65 from 60 (male) and 55
modernization of industrial system, high-quality population development” Xinhua, 6 May 2023

21
“China population: re-employment of elderly an ‘urgent, realistic problem to be solved”, 30 May 2023, SCMP
(female) to enlarge the potential labour force by 2030.
4. Demand-side rebalancing, with more income transfers from corporates and governments to
households22, and/or a budget-neutral re-composition of fiscal expenditures towards
households.
Under such a scenario, we expect potential growth would be significantly higher than our
baseline scenario. The upside scenario implies an average growth rate of 4.0-4.5% in 2023-30,
versus ~4.5% in 2021-22. On the expenditure front, the upside scenario expects China to
successfully rebalance its economy away from investment towards consumption, with the share
of consumption in GDP rising to ~60% by the end of 2030, while investment’s share would
decline to ~38% by the end of 2030. This implies consumption growth will rise to ~5% annually
through 2030, while investment growth would ease to 3.5-4.0% on average during the same
period.
Downside scenario
A downside scenario would require a collapse in investment (led by real-estate investment) in a
situation where total factor productivity has flatlined or gone backwards. If these multiple risks
were to materialise, which is not our base case, growth could potentially drop below 1%
China’s great success in achieving rapid growth in the past two decades has left it dealing with a
number of structural problems, including a high investment ratio, rising debt ratio, and unequal
income distribution. These are also partly the legacy of aggressive fiscal and monetary
expansion implemented to support economic growth in previous downcycles (ie, 2008-09, and
2015-16; Figure 16 and Figure 17).
According to PBoC data, China’s total debt as a percentage of GDP rose to c.290% in Q2 2023
from 216% at end-2014 (before 2015-16 stimulus) and 150% in early 2008 (before the surge in
post-GFC stimulus). Meanwhile, property-asset bubbles and excess capacity have become
serious issues, prompting concerns about an economic hard landing.
Figure 16. Property bubbles: uS, Japan, and China Figure 17. China’s mounting debt
Home price index China 2000-2023 (2000=100) % of GDP Corp debt, including LGFVs' bonds and loans
600 Japan 1982-2023 (1982=100) Govt debt
US 1996-2023 (1996=100) External debt
300% Household debt 70%
500 HH leverage (RHS)
250%
60%
400
200%
300 50%
150%
200 40%
100%
100 30%
50%
0 0% 20%
0 5 10 15 20 25 30 35 40 Jun-13 Jun-15 Jun-17 Jun-19 Jun-21 Jun-23
Normalised returns
22
We assume governments and corporates share a greater level of income with households through 1) changes to primary
income distribution (among capital owners, labour, and government), 2) secondary (government-led, tax/social-security
payment adjustments) and 3) tertiary redistribution (philanthropy and social responsibility).
On the expenditure side, while our baseline and upside scenarios assume consumption growth
remains broadly at current levels or higher, a downside outcome would see consumption
growth slowing to ~2% annually through 2030 on weakening household income growth and
rising unemployment.
A downside scenario, if it occurred, would be characterised by a deeper and longer contraction

in real-estate investment, with disproportionately more (private) developers going bankrupt
and exiting the market. While the government may use infrastructure spending as a
countercyclical buffer when property and external demand are weak, we expect total
investment would still decline 1-2% in this sort of a situation. This implies consumption’s share
would still rise to ~60%, but due to a sustained contraction in investment.
Population to shrink ~60mn in next decade

China’s total population has started to decline after peaking at 1.41bn in 2021. In particular, the
new-born population plunged to a record low of c.9.6mn in 2022, almost half the recent peak of
c.19mn in 2016. Along with a shrinking pool of women of childbearing age, China’s fertility rate
also slumped to a historic low of 1.28 in 2020 despite governments’ efforts to encourage people
to have more babies.
Looking forward, we expect China’s total population to shrink by ~60mn to 1.35bn by 2033 - a
level last seen in 2011 - and by ~80mn by 2035. The decline in China’s population in the next
decade will be almost equivalent to the total population of the UK. This sizeable drop reflects a
continued decline in the number of newborns and an acceleration in overall mortality as more
people born in the pre-One Child Policy baby boom reach the end of their lives.
We acknowledge that our forecasts envisage a more rapid population decline than those
published by the UN, which estimates China’s population will hold up at 1.42bn by the end of
2030 and only start to fall below 1.4bn from 2036 onwards (Figure 18). However, we think the
UN’s forecasts rely on its relatively optimistic projection for China’s birth rate, which it sees
staying above 10mn per year through the coming two decades.
In reality, China’s actual number of births already fell below that level (to 9.56mn) in 2022. We
think the downward trend is likely to extend through the coming decade (Figure 19).
Figure 18. China’s population is likely to shrink faster than uN Figure 19. ...with mortality numbers outpacing numbers of
forecasts... newborns
mn China's population (2023-36 are Barclays' forecasts) mn ppl Net change in population
UN path (2022) 35 Births
1,440 Deaths
30
1,420 25
1,400 20
1,380 15
10
1,360
5
1,340
0
1,320
-5
1,300 -10
2011 2016 2021 2026 2031 2036 1952 1964 1976 1988 2000 2012 2024 2036
Source: UN, Wind, Barclays Research Source: Wind, Barclays Research
Decline in births to continue
We expect birth numbers to decline from ~12mn on average in the past five years (2018-22) to
an average of ~7mn in 2023-35. The expected drop in births reflects: 1) a reduction in the
population of women of childbearing age, and 2) lower fertility rates (the average number of
children that would be born to a female over her lifetime).
• The number of women of childbearing age (defined as age 15-49) has already declined
significantly in the past decade, to 314mn in 2022 from 381mn in 2012 (Figure 20). Derived
from official surveyed data, we estimate the number of women of childbearing age will
continue to decline in the next decade, falling to ~290mn in 2035 (~300mn on average
during 2023-35). Even assuming unchanged fertility rates from 2020, the shrinking pool of
women of childbearing age would translate to a decline in the newborn population of ~3mn
per year (versus ~12mn births on average in 2018-22). This suggests China needs much
higher fertility rates to just keep its newborn population stable, which in itself poses a
significant challenge.
• Fertility rates have also continuously declined over the past decades (Figure 21). Despite the
abolition of the decades-old one-child policy in 2015, we note the fertility rate fell from 1.81
in 2017 to 1.28 in 2020, far below the replacement level of 2.1. As of 2020, China’s total
fertility rate was already below that of many DMs (China: 1.28, US: 1.64, Germany: 1.54,
Japan: 1.33), though it is still higher than that in Korea (0.84) and Hong Kong (0.7). While the
NBS stopped reporting fertility rates in 2021, we think the rate was still trending lower given
the sizable decline in the number of newborns, falling to c.1.1 in 2022 by our calculation.
Figure 20. Newborns declined on shrinking pool of childbearing Figure 21. ...and declining fertility rates
women...
Number of childbearing woman (aged 15-49) Fertility rate, total (births per woman)
mn Share, rhs %
400 29 China Japan US
3.0 France HK, China
Forecast 28
380 2.8 three-child policy
27 2.6 2021
360 26 2.4 one-child policy two-child policy
2.2 1979 2016
25
340 2.0
24 1.8
320 23 1.6
22 1.4
300 1.2
21 1.0
280 20 0.8
2011 2016 2021 2026 2031 2036 1979 1984 1989 1994 1999 2004 2009 2014 2019
We think the underlying reasons behind the fast decline in fertility rates are two-fold. First, the
social norm of marriage for Chinese women has been changing. Young Chinese women are
increasingly seeking diversity and individuality in their lives, with marriage no longer being
among the top priorities, let alone childbearing23. It is worth noting the number of couples
registering marriage almost halved to 7.6mn in 2021 from the recent peak seen in 2013.
Second, the financial burden of raising a child is mounting. According to the YuWa Population
Research Institute, the average total cost of raising a child until they reached 18 came in at
CNY485k in 2019, almost 10 times China’s household disposable income.
Reflecting this, we expect China’s fertility rate to edge lower to ~0.9 in coming years from c.1.1 in
2022 and 1.28 in 2020. Our assumption also takes into account the difference in fertility rates
23
“Why China’s Young People Are Not Getting Married”, New York Times, 10 July 2023
between rural and urban areas. We note rural areas, which hold c.35% of the total population,
usually have a higher fertility rate, partially due to the lower cost of raising a child. The fertility
rate in rural areas was 1.54 in 2020, compared to the nationwide figure of 1.28 and a sub-1.0
reading in some coastal cities (such as Shanghai and those in Jiangsu and Zhejiang province)
and the fastest ageing cities (e.g. Tianjin and those in northeastern China).
We assume the fertility rate in rural areas will fall less dramatically, to c.1.2-1.3, which is similar
to the level observed in developed countries. The urban-area fertility rate may drop to c.0.7-0.8
in coming years, which is similar to the situation in Korea and Hong Kong. Together, these give
us an estimate of ~0.9 nationwide.
Governments’ fertility-related policies (already adopted in some rich cities) - such as paid
childcare leave, cash transfers to families, and tax benefits - may struggle to counter the
challenge of low fertility rates in China24. A study from the UNFPA (2019)25 found that large-scale
expansions of family policies typically have short-term effects on fertility, leading to a time-
limited boost to total fertility, but that their long-term effect is often limited (see Labour
shortages: Daunting demographics, 23 May 2023).
Mortality numbers to climb

In contrast to the fast decline in the number of newborns, the rate of mortality has been rising
steadily since the 1980s, with deaths running at c.10mn on average in the past five years.
However, we expect the mortality numbers to increase at a faster pace in the next decade
(especially after 2027) amid the accelerating ageing process. Specifically, we forecast China’s
annual mortality numbers will rise from c.10mn in 2022 to c.12mn in 2027 and c.15mn by 2033.
Even with advances in medicine, an increasing number of people are likely to die of old age
(average life-expectancy stood at 78 years in 2020-21, likely to rise gradually) in the next decade.
Around 9% of the total population were aged above 70 in 2021, 3pp higher than the 6% seen in
2011, according to the National Bureau of Statistics (NBS). This cohort (age 70+, or 120mn+
population) has a significantly higher probability of contributing to the mortality count in the
next decade.
Diverging trends among age groups

China’s population is not only declining, but it is also ageing, similar to the situation in the euro
area (see Labour shortages: Daunting demographics, 23 May 2023), . To understand these
dynamics, we take snapshots of the population distribution by single age groups at three
different times: in 1995, 2021 and 2050 (Figure 22-24).
Our analysis shows:
1. The population distribution shifting from a situation where ~55% of the population was
below 30 years old, and ~10% of the population was above 65 years old in 1995, to one
where ~17% will be younger than 30, and ~36% will be older than 65 in 2050; in 2021, ~30%
were below 30, while ~15% were above 65.
2. The median-age population rose sharply, from 26 in 1995 to 39 in 2021. It is set to jump to 54
in 2050. For comparison, the UN estimated the median age in Germany and the US will be
age 50, and 44, respectively, in 2050 (Figure 25).
3. The decline in China’s working age population (15-59 age cohort) is set to accelerate from
2023 onwards, with an average decline of 11mn annually during 2023-35 versus annual
decline of 4mn in the past decade.
24
“Academics discuss cultural roots in birth rate drop”, China Daily, 11 June 2023
25
“Policy responses to low fertility: How effective are they?” UNFPA, May 2019
4. A rapid decline in the under-14 population group due to continued decline in new births.
Figure 22. Population distributions, by age, in 1995 Figure 23. ...in 2021...
1995 2021
Italy Spain Italy Spain France
France UK UK Germany US
Germany US 2.0%
Japan China, Barclays Japan China, Barclays
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0% 0.0%
1 11 21 31 41 51 61 71 81 91 1 11 21 31 41 51 61 71 81 91
Source: UN, Wind, Barclays Research Source: UN, Wind, Barclays Research
Figure 24. ...and in 2050 Figure 25. Median ages continue to increase
2050 Italy Spain France

Italy Spain Median age,
UK Germany US
France UK years
Japan China
Germany US 55
Japan China, Barclays
2.0% 50
45
1.5% 40
Forecast
35
1.0%
30
0.5% 25
20
0.0% 15
1 11 21 31 41 51 61 71 81 91 60 66 72 78 84 90 96 02 08 14 20 26 32 38 44 50
Accelerating ageing population

While it is a global trend, China’s population is ageing at a faster pace than other major
economies (including Japan, Germany and France). In this note, we follow the international
organisations’ (UN, OECD, and IMF) definition on the elderly population (ie, people aged 65 and
over), since it is at this period of life that the rates for sickness and death begin to show a
marked increase over those of the earlier years).
According to the NBS, the share of population aged 65 and above has already risen to 14% in
2021, significantly higher than the global average of c.10% and meeting the definition of a so-
called deep-ageing society. In level terms, the number of people aged 65 and above stood at
c.200mn in 2021.
We expect China’s ageing population share to rise further in the next decade, accelerating from
2027 onwards. We estimate that by 2030, more than 20% of the population will be over 65,
marking China’s entry into the ranks of super-ageing countries (Figure 26). In other words, it will
have taken just nine years for China to transition from “deep ageing” to “super ageing”. For
comparison, it took Japan 11 years (1994 - 2005) to make the same transition. It took Germany26
and France27 36 years and 29 years, respectively.
26
1972-2008
We think China’s accelerating ageing (especially after 2027) has been driven mainly by: 1) the
baby boom period starting from 1962 (the first batch will turn 65 in 2027); 2) the introduction of
the one-child policy in 1979, which significantly reduced the newborn population; and 3) rising
life-expectancy due to improving health care.
During the baby boom period, China saw the number of newborns exceed 25mn for 10 straight
years from 1963-1972 (with a peak of 30mn seen in 1963), before declining to 17mn in 1979,
when China introduced the one-child policy. This implies there will be at least ~25mn people
entering the ranks of the elderly (65+) every year from 2027-2037. Taking into account mortality,
we estimate the number of people aged 65 and above will rise from c.200mn in 2021 to c.350mn
in 2035.
Figure 26. While it is a global trend, China population is ageing at Figure 27. China sees persistent net migrant outflows though the
faster pace than other major economies (including Japan, germany magnitude is small
and France)
Net number of migrants per 1,000
thousands
% Share of population aged above 65 Net migration rate (RHS) population
China Japan US 200 0.2
30 France Germany
0 0
25
20 - 200 -0.2
Super ageing 20%
15 - 400 -0.4
UN medium-
Deep ageing: 14%
10 - 600 variant -0.6
projection
5 - 800 -0.8
0
- 1 000 -1.0
1970 1981 1992 2003 2014 2025 2036
1950 1970 1990 2010 2030 2050
Note: Estimated shares for China in 2023 and beyond
Source: OECD, Wind, Barclays Research Source: UN, Wind, Barclays Research
Fewer workers, fewer consumers

China’s working-age population, defined as those aged between 15 and 5928, decreased by an
average of 0.5% annually in the past decade, which translated to an annual decline of 4mn
during the period. Our analysis show the population drop in the 15-59 age cohort is set to
accelerate significantly from 2023 onwards, with an average annual decline of 11mn from 2023-
35 (or a c.1.3% annualised decline).
In particular, the key consumption demographic of people aged 25-45 is set to decline by 8mn
annually, dropping from 440mn in 2022 to 340mn in 2035 (or a c.2% annualised decline).
Moreover, we forecast the young population (age below or equal to 14) will decline by 120mn
from 240mn in 2022 to 120mn in 2035 (or c.5% annualised drop).
Immigration unlikely
In view of language, cultural and social barriers, we think it is challenging for China to resort to
immigration to help offset its low birth rates and replenish the working-age population (Figure
27). Unlike the US and the EU, where economies have been aided by positive net migration,
China has seen persistent migrant outflows since 1950, with cumulative decline of ~17mn
during 1950-2022. While the net migration rate is negligible (accounted for 0.02% total
population in 2022), we note a pick up in migrant outflows in 2021-22, during which China
implemented strict zero-COVID policy.
27
1990-2019
28
In practice, China’s current retirement age for men is 60, while retirement ages for women in blue-collar and white-collar
are 50, and 55, respectively.
As of 2020, China was home to just 1mn immigrants, about 0.1% of its population. For
comparison, immigrants accounted for 19%, 15%, and 14% of the total population in Germany,
the US and the UK, respectively (Figure 28).
Figure 28. Cross-country comparison of immigrant population
Size of migrant population within select countries (2020) mn

20% 18.8% 60
% of migrant in total population Migrants (RHS)
15.3% 50
15% 13.8%
13.1% 40
10.6%
10% 30
8.0%
20
5%
3.4%
2.2% 10
0.5% 0.1%
0% 0
Germany US UK France Italy RussiaSouth KoreaJapan Brazil China
Source: CSIS, Migration Policy Institute, Barclays Research
The decline in working-age population, along with accelerated ageing, has resulted in a steady
increase in the old-age dependency ratio (defined as the ratio of people over 65 to the number
of people aged 15-64, by international organisations) in the past decade. The ratio stood at
21.8% in 2022 from 12.7% in 2012.
Our analysis suggests the ratio will exceed 30% by 2030, and then rise above 40% in 2035. This
would mean that for every 2.5 working age individuals there will be one person aged over 65 by
2035. We think the burden of supporting retirees will grow visibly in the next decade, especially
given China has a tradition of children caring for their parents through old age. That may place
additional burdens on household budgets.
Figure 29. Working-age population to fall further as a share of total Figure 30. ...and to decline in level terms
population in China...
Italy Spain Italy Spain

France UK France UK
Germany US mn Germany Japan mn
Japan China US, rhs China, rhs
75% China (15-59, rhs) 100 China (15-59, rhs) Forecast 1040
Forecast
70%
75 790
65%
60% 50 540
55%
25 290
50%
45% 0 40
50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50
Note: population aged 15-64, % of total population Note: population aged 15-64, % of total population
Singles for life

According to the statistics from Ministry of Civil Affairs, the number of single adults (unmarried
people) has risen rapidly amid falling marriage rates and rising divorce rates. The single adults
population reached 277mn in 2021 (~20% of population), from 170mn in 2017 (~12% of
population), with annualised growth rate of 6% (Figure 31 and Figure 32).
A Wuhan University survey covering 34 provinces in 202329 found significant differences between
urban and rural singles, with the former marrying later and the latter often staying single for life.
In cities, young men and women were found to be choosing to remain single, while in the
country people were remaining single due to the lack of suitable partners. Moreover, in rural
areas, a cultural stigma attached to unmarried people over 30 means they may be eliminated
from the marriage market and face the risk of being single for life.
Figure 31. Number of singles rose steadily... Figure 32. ...with declining marriage rates
% mn Marriage registration, by age

mn Singles Share (% of population, rhs) ‰
12
300 20.0 12 20-24 25-29 30-34 35-39 40+
10
280 19.0 10
8
8
260 18.0
6
6
240 17.0
4
4
220 16.0 2
2
200 15.0 0
0
2017 2018 2019 2020 2021 2005 2009 2013 2017 2021
Dec-21
Youth unemployment reflects more structural factors

The shrinking working age population seems at odds with surging urban youth
unemployment. China’s urban youth unemployment rate (aged 16-24) hit a record
high of 21.3% in June (note the NBS paused the release of the youth unemployment
data from July 2023 onwards), double the pre-pandemic level of ~10% (April 2019).
This is also much higher than youth unemployment rates elsewhere, such as 7.5% in
the US, 13.9% in the EU in May, and an estimated 14.9% in the Asia-Pacific last year.
Interestingly, during the same period, the total urban unemployment rate has
remained in a relatively tight range, of 5-5.6% in 2018-23 (peaked at 5.6% in 2020).
After examining the Chinese youth labour market (ie, participation, education and
employment profiles, see China: Youth unemployment - just hang in there, 14 July
2023), we think the uptrend in the youth unemployment rate in recent years reflects
more structural than cyclical factors, as the economy is undergoing a profound
transformation amid significant policy shifts.
• Persistent downward pressure on sectors that tend to absorb more youth

labour. China’s transition from manufacturing towards being a more services-
oriented economy in the past decade is clear in employment patterns, which have
seen total employment gradually shift from the manufacturing and construction
sectors into services. Another factor, supply chain relocation amid rising
geopolitical tensions, has driven a further structural slowdown in labour demand
in the manufacturing sector.
On a cyclical basis, we note the manufacturing sector is also under pressure this
year from a decline in external demand. Weakness in exports has been broad
29
https://www.aninews.in/news/world/asia/chinas-single-population-to-reach-400-million-youths-staring-at-being-
single-for-life20230223234719/
based, with shipments to the US, EU, and Asean all falling notably in Q2. With new
export orders also deep in contraction, we expect exports to decline through H2,
weighing further on manufacturing output and employment. Moreover,
moderating services activity levels suggest the recovery in this sector is unlikely to
be quick enough to offset the impact from reduced employment in the
manufacturing sectors.
• China’s shifting policy priorities – crackdowns on property, iT services,

education and financial-services – have reduced employment options for
higher-educated youth. The Party Work Report delivered by President Xi and
China’s 14th Five-year Plan (FYP) for 2021-25 detailed explicitly the planned shift in
the structure of China’s economy away from traditional industries, and a credit-
fuelled and real estate-led growth model to high-end manufacturing and modern
service industries (see Special Topic: China: Policy evolution, 16 September 2021,
and Asia Credit Alpha: China’s shifting goalposts, 8 June 2023).
We think the crackdowns in the past two years on the housing, IT services,
education and financial sectors can be viewed as part of the government’s broad
efforts to shift the economy towards new engines of growth, guiding resources
(human talent and capital) away from the ‘old’ sectors into the favoured ‘core’
tech sectors and to promote innovation. The drastic policy shifts were also
intended to reduce the cost of living for young people and to improve social
equity. However, these moves have also exacerbated the shortage of employment
options for young people.
• efforts to promote new engines of growth are likely exacerbating job-skills

mismatches, suggesting higher structural youth unemployment. We note
courses in IT and finance have been among the most popular majors in
universities30, likely a reflection of the fast development of China’s financial
markets and platform economy over the past several years. Another attraction is
salaries, as IT services and finance offer the highest-paid jobs. However, the
regulatory crackdowns on these sectors have resulted in an oversupply of IT and
finance professionals31, while at the same time there is a shortage of qualified
workers in the high-tech sectors (ie, semiconductors and AI)32.
By our estimates, the IT services and finance sectors accounted for only ~6% of
total employment, while graduates who majored in these two areas accounted for
~20% of all graduates in 2022, according to Ministry of Education data33.
Meanwhile, with graduates seeming to still prefer careers in the IT and finance
sectors, China is facing a deficit of approximately 200k workers in the
semiconductor sector this year, according to the China Semiconductor
Association. Moreover, McKinsey estimates that graduates from local and overseas
universities, and existing qualified workers will amount to only one third (or 2
million) of the workers needed in the AI sector by 2030, implying a shortage of four
million workers.
• Changes in motivation, values and lifestyles of China’s youth seems to have

led to not only high voluntary resignation rates, similar to reported trends in the
West34, but also delayed entry into the employment market, and a “low-desire” life
35
.
Voluntary resignations accounted for 68% of youth unemployment, compared

with 37% in the 35-59 age cohort, according to the 2021 China Labour Statistics
yearbook. In contrast to previous generations, we think the high rate of voluntary
resignation suggests a different lifestyle outlook among the current youth
generation. This is likely to be seen in a preference for taking career gaps or
working less to have more leisure time, especially if they consider the opportunity
cost (forgone income) as being low. With China’s sinking fertility rates and people
opting to marry and have children later, most have limited or no dependents.36
Chart-pack on youth labour market

Figure 33. Youth unemployment rate hit record high of 21.3% in June Figure 34. Youth labour force and unemployment levels
Young labour force, urban

% Surveyed urban unemployment rate: aged 25-59 %
mn Youth unemployment, urban
6 Surveyed urban unemployment rate: aged 16-24, rhs 22
Youth unemployment rate, urban, rhs
6 20 60 54.81 25%
5
18 50 20%
5 19.6%
39.03
5 16 40
32.19 15%
5 14 12.8%
30
5 10%
12 9.0%
4 20
4 10 5%
10 4.96 5 6.32
4 8
Feb-18 Jun-19 Oct-20 Feb-22 Jun-23 0 0%
2010 2020 2023Q1
Source: Wind, Barclays Research Source: NBS, Barclays Research
30
“China’s most popular majors”, Jiemian news, 7 June 2023
31
“With record unemployment, China’s youth confront bleak job market”, The Standard, 20 June 2023
32
“China’s digital talent gap widening amid hi-tech, smart sectors push, reports say”, SCMP, 1 May 2023
33
“An estimated of 1 million university graduates are majored in Finance in 2021”, Huxiu, 27 August 2021; “With 11.6mn
new graduates flooding the job market, those majored in the ever-popular IT are also set for a difficult year”, Netease, 30
January 2023
34
“Almost 70% of US workers plan to leave their jobs in 2023“, Yahoo, 25 May 2023
35
“As China’s graduates delay employment, experts warn of ‘far-reaching’ economic and demographic implications”,
SCMP, 2 Feb 2022; “Young Chinese jobseekers who can’t find work feel increasingly lost in oversaturated labour pool”,
SCMP, 16 Dec 2022
36
“Academics discuss cultural roots in birth rate drop”, China Daily, 11 June 2023
Figure 35. Youth employment by education level Figure 36. Youth employment by sector distribution
Youth employment, urban, by education level, 2020 Chinese Census Youth employment, urban, by sector, 2020 Chinese Census
%
35
Manufacturing 22.0%
28.6 Wholesale & retail 17.1%
30
27.1 Accommodation & catering 8.7%
26.1
Education 7.4%
25
Construction 6.6%
20 Resident services 5.5%
16.0 IT services 4.6%
15 Leasing and business services 4.5%
Transport, post and storage 4.4%
10 Health care and Social work 3.7%
Public admin 3.3%
5 Real estate 2.7%
1.7
0.5 Agriculture 2.5%
0 Research and polytechnic services 2.1%
Primary school Junior high Senior high Vocational Undergraduate Master and PhD Entertainment 2.0%
and below school school college Finance 1.8%
0.00 0.05 0.10 0.15 0.20 0.25

Source: 2020 Chinese census, Barclays Research Source: 2020 Chinese census, Barclays Research
Figure 37. employment is shifting from manufacturing and Figure 38. gDP share by sector
construction to service sectors
mn people Urban employment by sector mn people % GDP share by sector %

10 60 12 40
50 10
8 36
8
40
6 6 32
30
4
4 28
20
2
2 10 0 24
11 12 13 14 15 16 17 18 19 20 21 11 12 13 14 15 16 17 18 19 20 21 22
IT services Wholesale & retail IT services Wholesale & retail
Financial services Leasing & business services Financial services Leasing & business services
Construction (RHS) Manufacturing (RHS) Construction Manufacturing (RHS)
Figure 39. iT services and finance offer the highest paid jobs Figure 40. unemployment due to voluntary resignations, by age
group, 2020
% income Urban private sectors income level % Unemployment from voluntary

growth in and income growth in 2022 80 resignations, by age group, 2020
20 2022 68.2
Finance 70 63.2
15 60
50
10 IT
40 36.6
5 Catering & 30
hotel
20 14.5
0
Education 2022 income level 10
RMB thousand
-5 0
40 50 60 70 80 90 100 110 120 130 16-24 25-34 35-59 60 and above
Source: Wind, Barclays Research Source: 2021 China labour statistical yearbook, Barclays Research
Figure 41. Seasonal patterns suggest youth unemployment rate to Figure 42. ...amid record high number of new university graduates
peak in July...
mn
% Youth unemployment rate, urban New university graduates
14
2018 2019 2020
23 2021 2022 2023 12 11.6
10.8
10 8.7 9.1
20 8.0 8.2 8.3
7.5 7.7
8 6.8 7.0 7.3
6.1 6.3 6.6
17 6
4
14
2
11 0
09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
8 Note: Include vocational college graduates/ undergraduates/PhD and
Masters
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
NBS, Barclays Research

Appendix: Policies to counter demographic decline

Figure 43. government efforts to combat ageing and shrinking population
Authority Policy / news

elderly care related policy
State Council issued guidance to all provinces to build a basic elderly care system by 2025. “Promoting the
construction of the basic elderly care service system is an important task for implementing the national
strategy of actively responding to population ageing and achieving equalisation of basic public services”.
May-23 State Council Provinces must improve the basic pension system service and implement a long-term care security system
that connects insurance, welfare and assistance, the statement said. Eleven of China’s 31 provincial-level
jurisdictions are running pension budget deficits. The state-run Chinese Academy of Sciences sees the
pension system running out of money by 2035.
The NDRC released measures to support the elderly care and childcare service industries to overcome
difficulties. The measures consist of a number of policies that lower costs for eldercare and childcare service
Aug-22 NDRC providers, including exemptions on rent, reductions on taxes and fees, and the provision of financial
support. Besides these areas of support, the government will also increase investments in the construction
of eldercare and childcare facilities, including by providing local government bonds for such projects.
State Council has released a plan for the development of the country’s elderly care services system during
the 14th Five-Year Plan period (2021-2025). The plan specifies major goals and tasks for the five-year period,
including expanding the supply of elderly care services, improving the health support mechanism for the
Feb-22 State Council
elderly, and advancing the innovative and integrated development of service models. It lists nine major
indicators, such as the number of elderly care beds and the ratio of nursing care beds in elderly care
institutions, to mobilize society as a whole to actively respond to population aging.
reitrement age policy
The 20th Party Congress took note of the evolving demographics, stating that the nation will do its utmost to
phase in a new policy structure to boost fertility and birth rates through cutting costs associated with
Oct-22 20th Party Congress pregnancy and childbirth as well as schooling from kindergarten to college and university. Also, it asked the
authorities in charge of the nation’s human resources to start considering when to raise the retirement age
which is currently 60 years for men and 55 years for most women.
China is eyeing a progressive, flexible and differentiated path to raising the retirement age, a senior expert
Mar-21 MOHRSS from the Ministry of Human Resources and Social Security (MOHRSS) has revealed, meaning that
implementation would be delayed initially by a few months, which would be subsequently increased.
Fertility-related policy
Shanghai and Shanxi are increasing the number of paid marriage leave days to up to 30 days. Chinese
Feb-23 Shanghai / Shanxi
employees are typically entitled to three days of paid marriage leave.
Tech hub Hangzhou is granting new parents 20,000 yuan, or $2,900, as a one-off subsidy for having a third
Feb-23 Zhejiang province
child this year, and 5,000 yuan ($720) to those having a second child.
Authority Policy / news

Jinan city released its implementation plan to improve the fertility policy and promote long-term and
balanced population development. Families with a second or third child born since 1 January can access a
Jan-23 Shandong province
childcare subsidy of 600 yuan per month for each child until the child reaches the age of 3. The plan also
noted the maternity and paternity leave policies for local residents.
Megacity Shenzhen plans to subsidize third-child families up to 19,000 yuan ($2,800) over the course of three
years. State-owned Global Times reported “the fertility rate in Shenzhen has shown a sustained downward
Jan-23 Guangdong province trend over recent years, meaning there are several long-term and difficult challenges for policymakers to
navigate. Therefore, it is necessary to introduce birth support measures as soon as possible, to effectively
release the fertility potential, slow down the aging process, and enhance the overall vitality of the society”.
Panzhihua city was the first in the country to offer subsidies for families who give birth to a second or third
Jul-21 Sichuan province
baby.
In May 2021, the Politburo meeting approved to relax two-child policy to allow all couple to have up to three
children. In August, the National People’s Congress (NPC) formally passed the revised Population and Family
Planning Law, along with resolutions aimed at boosting the birth rate and “reducing the burden” of raising a
May-Aug 2021 Politburo / NPC
child. These include cancelling the “social maintenance fee” - a financial penalty couples pay for having
children beyond the limit, encouraging local governments to offer parental leave, increasing women’s
employment rights; and improving childcare infrastructure.
Source: Global Times, SCMP, Reuters, Barclays Research
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China Demographics - From dividend to drag - 13 Sep 23

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China Demographics - From dividend to drag - 13 Sep 23

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Economics Research

From dividend to drag

Please see analyst certifications and important disclosures beginning on page 26 .

• Based on historical birth records, we estimate the decline in China’s working-age

° Meanwhile, rising youth unemployment could reduce productivity and growth

• We expect (high-tech) manufacturing investment to outperform, rising by 5-6% annually on

• We also explore an upside scenario, where China implements additional growth-enhancing

Demographic challenges beget economic challenges

Figure 1. China’s population is set to shrink in coming decades

Source: Wind, Barclays Research

% Pension fund deficit (RHS)

Source: Wind, Barclays Research Source: UN, Wind, Barclays Research

To gauge potential growth, we rely on a standard Cobb-Douglas production function

Source: IMF, Wind, Barclays Research

Figure 5. China’s consumption and investment growth in three scenarios

Source: Wind, Barclays Research

• Retirement age remains stable.11

• Balance of consumption versus investment is little changed.

Labour and human capital

% China (labour force participation rate for age 15+)

Source: Wind, Barclays Research Source: Wind, Barclays Research

Total factor productivity

1. SOEs continuing to dominate domestic industries, which could delay an eﬀicient

%, total SOE assets share %

Source: Wind, Barclays Research Source: Wind, Barclays Research

China's consumption share Investment Net exports

Source: Wind, Barclays Research Source: Wind, Barclays Research

3. Shrinking household size.

4. Redevelopment of old housing stock

% y/y Property investment

Source: Wind, Barclays Research Source: Wind, Barclays Research

Figure 14. elements of property demand projected out to 2030

mn sqm Urbanisation demand Upgrading demand Replacement demand

2,000 Shrinking HH size demand Investment demand Commercial property demand 30

Source: Wind, Barclays Research

We expect more pro-high-tech manufacturing policy in coming years, especially around

Figure 15. China’s manufacturing ambition

2020 2025 2030

Biotechnology - advanced medical devices (DM)

New materials - strategic materials (DM)

Agricultural equipment (DM)

Power equipment (DM)

New energy vehicles (DM)

Railway equipment (FM)

Ocean engineering equipment & high-tech ships - high-

Aerospace - general-purpose aircraft (GM)

Numerical control tools & robotics - robotics (DM)

New IT - integrated circuits (DM)

Note: DM- domestic market; 0% 20% 40% 60% 80% 100%

Source: “Made in China 2025” by State Council, Barclays Research

government eﬀorts to combat ageing and shrinking population

“Eﬀorts should be made to perfect the

Against the backdrop of the deteriorating demographic situation, authorities at the

See Appendix for more examples.

modernization of industrial system, high-quality population development” Xinhua, 6 May 2023

(female) to enlarge the potential labour force by 2030.

A downside scenario, if it occurred, would be characterised by a deeper and longer contraction

Population to shrink ~60mn in next decade

Source: UN, Wind, Barclays Research Source: Wind, Barclays Research

Decline in births to continue

Source: Wind, Barclays Research Source: Wind, Barclays Research

Mortality numbers to climb

Diverging trends among age groups

Our analysis shows: