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China’s workforce is expected to start shrinking in next few years

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SHIZHAO, CHINA — China’s large labor force has been central to its rise as an economic power, allowing companies to tap a seemingly endless pool of workers willing to move from their home towns, often live at the factory site and accept comparatively low wages.

That era is ending.

In a shift that is intensifying the economic competition between China and the United States, China’s working-age population has plateaued in size and will begin getting smaller sometime in the next five years, according to demographers and recently released census data. The number of 20-to-24-year-olds, a main source of entry-level and factory labor, is already shrinking, the leading edge of an eventual decline in the overall population.

The demographic change is ushering in higher wages and inflation and remaking the country’s social fabric — particularly in rural villages such as this one south of Beijing, where working adults have all but disappeared to major cities. If there are children, they are living with or visiting grandparents.

The shift has also prompted a national push to develop technology- and innovation-driven industries that need fewer workers — industries in which the United States has traditionally held an advantage. Instead of the “cheap” China of the past 30 years, U.S. business and government officials face a country that is demographically stagnant, increasingly expensive and pressing hard to compete.

“China is a country in a race against time,” the U.S. Chamber of Commerce wrote in a study of China’s emerging economic policies. As it rushes to develop an economy in which a smaller force of more productive workers can support an explosion of retirees, “the country can’t get rich before it gets old,” the report said.

China’s use of state power and support to boost industries such as biotechnology, telecommunications and alternative energy has become a main concern among U.S. business and government officials — and is arguably a more direct threat to American economic interests than, say, China’s low exchange rate. In hearings and diplomatic meetings, U.S. officials and lawmakers have focused on Chinese policiesthat have barred top U.S. technology companies from some types of business, undercut others with state subsidies and aimed to develop Chinese competitors in industries such as commercial aircraft manufacturing that currently support tens of thousands of U.S. jobs.

It is a natural step for an economy that has rapidly industrialized over the past quarter-century, largely by producing what others ordered it to produce at a world-beating cost — the “China price.” Demographics, however, are making the change more urgent as the country confronts the long-term consequences of its strict population-control rules. China’s 30-year-old family-planning policy limits most couples to one child, a restriction the government imposed to curb a large and then-rapidly growing population that officials feared the country could not support.

The first generation born under the one-child policy is now approaching middle age, providing a clearer sense of the rule’s impact. The results are “alarming,” said Wang Feng, a demographer and director of the the Brookings-Tsinghua Center for Public Policy in Beijing, after the release of the country’s latest census.

The new data showed that overall population growth slowed more than expected during the past decade, to 0.57 percent annually. Wang said the fertility rate is now fewer than 1.5 births per woman, among the lowest in the world and well below the replacement rate of 2.1 births per woman. This will push forward the point when China’s population peaks at around 1.45 billion, he said, currently forecast for 2029. After that, the population will decline.

China currently has around 1.3 billion people. The number under age 14 fell by more than a third in the past decade, while the number over 60 grew by more than 20 percent.

That sort of demographic momentum — with far more people preparing to leave the workforce than are entering it — is extremely difficult for a nation to reverse.

The number of people of working age is still expected to grow, slowly, for perhaps five more years before reaching its peak, and a recent study by the U.S. Chamber of Commerce in China noted that there are still around 25 million “surplus” workers in rural areas available to move into factory jobs.

But that rural labor pool is expected to disappear in perhaps four years as manufacturers continue to expand and hire. Over the past two years in particular, wages have been rising rapidly, while businesses small and large complain about increasing worker demands and employees who are quick to quit because they can easily find other jobs at better pay.

Industrial development has been shifting toward more rural parts of the country, with major exporters such as Taiwanese manufacturing conglomerate Foxconn moving to Guanxi and Hunan provinces to avoid labor shortages and higher wages in China’s more heavily developed coastal areas.

In the industrial city of Langfang, south of Beijing, local authorities say they need to recruit another 100,000 rural workers into factory jobs to meet the demands of companies at its sprawling industrial park.

The family dynamics in small villages such as Shizhao show the constraints the country is facing.

Within a generation, families such as that of Shi Qingzan, 75, went from producing a sizable “demographic dividend” — creating the workers who manned China’s rapid growth — to setting the stage for an era of decline. Removed to the countryside in 1962 to become a farmer when China was coping with the aftermath of famine, Shi had four children in the years before the one-child policy. Now ages 38 to 48, those children and their spouses — eight adults — have produced just five children.

The village school here closed two years ago.

When he was young, “the government moved everyone back home to help out with agricultural production,” Shi said, but the impetus now is to move to major cities. “In 20 years, there won’t be anyone here.”

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