China's looming worker shortage threatens economy

BEIJING (AFP) - China's demographic timebomb is ticking much louder with the first fall in its labour pool for decades, analysts say, highlighting the risk that the country grows old before it grows rich.

The abundant supply of cheap workers in the world's most populous nation has created unprecedented cost efficiencies that underpinned its blistering economic expansion over the past 35 years, propelling the global economy forward.

But now the inexorable consequences of the one-child policy imposed in the late 1970s are beginning to appear, and threaten to impact its future growth.

China's working-age population, defined as 15-59, fell 3.45 million last year, official data showed earlier this month - the first decline since 1963, after tens of millions died in a famine caused by the Great Leap Forward.

The immediate effect may be small in a nation of 1.35 billion people, but the cumulative effects will accelerate over the coming decades.

The number of people aged between 15 and 64 will drop by around 40 million between 2014 and 2030, said Wang Guangzhou, a researcher with the Chinese Academy of Social Sciences (CASS), a government think-tank - more than Poland's entire population.

"The population is aging so fast that we are running short of time to deal with it," said Li Jun, also of CASS, adding the family planning policy had exacerbated the problem.

China's proportion of over-65-year-olds is projected to double from seven to 14 per cent over only 26 years - a key demographic measure that took the United States 69 years to complete.

"Undoubtedly it will substantially slow down China's potential growth rate," Yao Wei, an economist with Societe Generale in Hong Kong, told AFP.

An ageing population not only means fewer people available to employ and higher labour costs, but investment - a key driver of China's growth - will be harder to maintain as families spend their savings on health care, she said.

Chinese authorities maintain that controlling its population growth has been key to increasing its prosperity.

But while China has risen to become the world's second-largest economy, on a per capita basis it still lags far behind the US and other developed countries.

Industrial disputes have become more common in recent years, as workers demand higher pay and better working conditions on the back of growing awareness of their rights and the shortage of skilled staff.

Multinational companies are looking to other developing economies with lower wages for further expansion, with some already moving production bases out of China to rivals such as Indonesia and Vietnam.

In a survey of 514 Japanese manufacturers by the Japan Bank for International Cooperation last year, the number of respondents voting China as the top destination for overseas business fell by more than 10 percentage points on 2011.

Economists said China must look to speed up the transformation of its economic model and move up the value chain.

"The golden period of the manufacturing industry, particularly those depending on exports, has gone," said Yao.

At the same time, she said, the country was woefully underprepared to meet the burden of caring for the elderly.

"The fiscal situation is not prepared and the social security network is not complete," she said.

By around 2060, every three Chinese workers will have to support two people above 60, compared with a ratio of five to one now, according to Li's projections.

It is a crucial challenge for the ruling Communist Party, said Ren Xianfang, a Beijing-based analyst with research firm IHS Global Insight.

"Delivering growth and delivering social security to the general public are the key things for the state to (maintain) its legitimacy." Analysts said the medical services are increasingly expensive and hard to access, while the country's flagship public pension plans are crippled by problems including insolvency risks, difficulties in expanding coverage and mismanagement.

A rural areas programme was introduced in 2009 to provide people from the countryside with their first ever state-subsided retirement scheme, but its payouts are particularly meagre - in many areas as low as 55 yuan (S$10.88) a month.

The husband of Du Wenlan, a farmer from Chongqing, gets 80 yuan a month from the plan. She only buys new clothes once every three years, she said, and tries to save money by diluting their rice porridge.

"What can 80 yuan do?" she asked.

On the streets of Beijing, Su Xu, 30, who works for a cosmetics company, told AFP: "I panic when I think about my retirement."

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