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China Must Grow Its Shrinking Workforce to Keep Up

China Must Grow Its Shrinking Workforce to Keep Up

(Bloomberg Opinion) -- Forget that image of sweatshops making all kinds of cheap stuff with plentiful labor. Now China's workforce is shrinking and its population graying rapidly. Maybe many in the West haven't noticed, but Beijing has: Bloomberg News reported Monday that China's cabinet plans to end the limits on family size that, among other things, have now left the country short of workers.  

About a quarter of the population will be 60 or older by 2030, according to government projections last year. That's up from about 13 percent in the 2010 census. China's working-age population is still huge at about a billion, but it's getting smaller. (Coincidentally, 2030 is about the time China is supposed to eclipse America as the world's largest economy.)

Recent steps to encourage childbirth underscore a handful of serious challenges China faces as economic growth both slows and evolves. The path to supremacy, if that is the goal, is tougher than many imagine. Easing limits on family size attests to that.

China's economy has evolved too far to be carried by cheap manufacturing. The nation's share of the global textile and clothing industry, for example, is waning, and wages are increasing, as reported by the South China Morning Post. (Westerners can check the labels next time they're shopping for clothes: many will say they were made in Vietnam, Pakistan or Indonesia.) China's graying and diminishing workforce is part of what's driving this. It's also driving Beijing's investment in fields like robotics and new-energy vehicles — a new model for the nation's shrinking workforce.

While China tries to alleviate its demographic crunch, the aging society means a pension shortfall. Contributions from Chinese workers no longer cover retiree benefits, forcing the state to plug that gap. That adds urgency to Beijing's efforts to rein in burgeoning corporate debt, given the government will need to fund its own deficits. That may also partly explain why China is keen for foreigners to step up their participation, ever so gradually, in the country's bond markets. China's capital markets, as I have written, are small relative to, say, the U.S. when you consider the size of China's overall economy. China will need to develop those, too.

The government is trying anything it can to keep growing and gaining on the GDP leaderboard.

Put more bluntly, China doesn't want to become Japan.

Remember when Japan was supposed to take over the world? Then demographics caught up with it. While it's still a prosperous society, the scenarios of world domination popularized by the book and 1993 movie "Rising Sun" seem quaint. Cushioning the blow for Japan: Although it is short of workers and large-scale immigration remains taboo, the nation is a pioneer in automation. And although there are relatively few working-age Japanese to support the many older citizens, the wealthy economy can afford a generous social safety net.

For its part, Beijing must figure out what comes next. It has at least realized one thing: Future generations will be the key.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

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