Qilai Shen - Workers make fluorescent light bulbs on an assembly line at a Technical Consumer Products, Inc (TCP) factory in Zhengjiang, China.
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.
Robert Horrocks, chief investment officer at Matthews International Capital Management LLC, talks about China's economy and markets and the outlook for consumer spending in the country. (May 25)
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.
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