China’s working population is shrinking, facing low birth rate

China’s population is shrinking, and the demographic shift will ultimately hurt its economy, shrink the labor force and put pressure on fiscal policy.

“The working age population [in China] will fall so rapidly over the next decade, that the Chinese economy will need to deal with 1% drag in GDP growth per year for next 10 years,” Darren Tay, head of Asia country risk at BMI Country Risk & Industry Analysis, told “Squawk Box Asia” in June, referring to estimates gathered by evaluating world population data released by the United Nations.

“The fiscal strain as a result of ageing is immediate and concerning,” the Economist Intelligence Unit has warned.

“Economic growth hinges on productivity, capital accumulation and labour inputs. The negative effect of an adverse demographic landscape will manifest primarily through a shrinking workforce,” according to the report published in January.

Raising the retirement age is “one of the few viable options” to maintain long-term fiscal balance, the EIU said.

“Our calculations suggest that if the retirement age is raised to 65 by 2035, the pension budget shortfall could be reduced by 20% and received net pension can be increased by 30%, suggesting relief of both government and household burden,” according to the report.

Birth rates are falling around the world as women choose to have children later, or not at all.

Fertility rates have halved across OECD countries — some of the world’s richest nations — falling from about 3.3 children per woman in 1960 to about 1.5 children per woman in 2022, according to the OECD, or Organisation for Economic Co-operation and Development.

“This is significantly below the ‘replacement level’ of 2.1 children per woman needed to keep population constant in the absence of migration,” according to the June report.

China’s population fell for a second consecutive year in 2023 to 1.409 billion people — dropping by 2.08 million from the previous year, according to data from the National Bureau of Statistics of China.

That’s more than the population decline of about 850,000 in 2022 — the first year deaths outnumbered births in the country since the early 1960s during the Great Famine.

“This is a consequence of the one-child policy [set] in place [in] the 1980s,” Erica Tay, director of macro research at Maybank, told CNBC.

China’s population is expected to shrink to 1.317 billion by 2050, and drop by nearly half — to 732 million — by 2100.

Fertility rate in the country is dropping more quickly than its regional peers like South Korea and Japan, Tianchen Xu, a senior economist at The Economist Intelligence Unit (EIU), told CNBC.

He said the three countries are disproportionately impacted by a rapidly aging population, largely due to improved standards of living, which have a “very strong inverse relationship with fertility…