China Faces Economic Blow From Population Crisis

Newsweek

3 days ago

Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
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China's potential output growth could fall to half its 2020s level by mid-century, with a shrinking labor force becoming a structural drag on the world's second-largest economy, warns a new report.
Birthrates are falling across much of the world amid falling child mortality rates, increased life expectancy, greater economic opportunities for women and rising costs of living.
China and several of its East Asian neighbors face a sharper demographic challenge: some of the world's lowest birthrates alongside rapidly aging populations, without the mitigating effect of large-scale immigration seen in countries like the United States.
Women push toddlers in strollers in Chongqing, China, on July 20, 2025.
Women push toddlers in strollers in Chongqing, China, on July 20, 2025.This trend has driven policymakers to roll out childcare subsidies, fertility treatments, and other pro-natal measures—so far to little effect—in hopes of slowing or reversing the trend and maintaining economic stability.
Newsweek reached out to the Chinese foreign ministry by email with a request for comment.
Demographic Drag
China's declining fertility rate—estimated at 1.2 births per woman in 2024—could undercut the U.S. rival's long-term economic ambitions.
Economists Marco Santaniello and Benjamin Trevis, in a report on global demographic trends published by independent global advisory firm Oxford Economics, project China's potential output growth will fall sharply over the coming decades because of a shrinking workforce and slowing productivity gains.
Unlike GDP growth, which can fluctuate with business cycles, potential output growth measures the maximum pace of expansion that can be achieved without fueling inflation.
The report estimates growth could drop below 4 percent in the 2030s and fall under 3 percent in the 2040s, down from double-digit rates during the country's boom years in the 2000s and early 2010s.
Those projections roughly align with a working paper published by the International Monetary Fund in November.
By the 2050s, potential growth could slow to just above 2 percent annually, the report finds.
The Chinese Communist Party leadership in Beijing have set their sights on around 5-percent GDP growth this year—a modest target compared to the 2000s and 2010s as the country continues to grapple with a prolonged housing market crisis, tepid consumer confidence and a range of other economic challenges.
Labor Crunch
Meanwhile, China's shrinking labor force is expected to reduce growth by approximately one percentage point per year by that time as the working-age population contracts.
Another warning sign is China's rising old-age dependency ratio, which measures the number of people aged 65 and over relative to the working-age population.
China's old-age dependency ratio stood at 21 percent in 2024, according to estimates by the United Nations' World Population Prospects. That's an 8-percent rise since 2013, when the working age population was at its peak.
The growing imbalance is expected to place increasing strain on China's limited social safety net, with the costs falling on a shrinking base of workers as the country joins Japan and South Korea as a so-called "super-aged society."
"We anticipate this pressure being felt most acutely in developing economies like China and Brazil, where populations are still relatively young but ageing fast," the authors said.
In a January report, researchers at Southwestern University of Finance and Economics in Chengdu projected that even under their most optimistic scenario—where China's fertility rate climbs back up to 1.31—the share of the population aged 65 and older would still peak at 36 percent by 2084.
In the least optimistic model, seniors would account for more than half the population by the end of the century.
A Gen Alpha Bump
While there is broad consensus that these demographic shifts will pose serious long-term challenges—particularly in terms of workforce strain, slower productivity growth, and reduced innovation—some analysts argue that the risks may be overstated in the near to medium term.
China's Generation Z, now in their late teens to late 20s, will be joined in the workplace by the more numerous Generation Alpha over the next decade, Noah Smith, an economics commentator and former assistant professor of behavioral finance at Stony Brook University, observed in a November blog post.
This will inject some demographic momentum into the labor force before the inevitable gradual decline.
"China's dependency ratio in 2030 will still be as good as Japan's at the height of its economic miracle," Smith wrote. "Around 2050, things start to look worse. China's big Millennial generation will begin to age out of the workforce, and no large young cohort will be coming up to replace them."