Research Institute of Economy, Trade and Industry (RIETI)
BBL Seminar
Handout
September 12, 2011
“China’s Demographic Change and Implications
for Rest of the World"
CAI Fang
http://www.rieti.go.jp/jp/index.html
China's Demographic Change and
Implications for Rest of the World
CAI Fang
Institute of Population and Labor Economics
Chinese Academy of Social Sciences
Prologue
• Mainly talk about population trend &
implications to China. For rest of the
world, you may think of how to deal with
the following trends
1. Labor-intensive industry moves to inland
2. labor cost hike reduces trade surplus
3. Catching up in technology & skills
4. Changing from producer to consumer
Demographic Transition in China
China Demographic Transition
Comparison of Total Fertility Rates
3.0
2.6
2.5
2.5
2.0
1.6
1.5
1.4
1.4
China
Japan
1.0
0.5
0.0
World
Developing
Developed
2050
2045
2 040
2 035
1200
2 030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
New Prediction on Total Population
1600
1400
2035:1437
1000
800
600
400
200
0
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
Urban
2006
2005
2004
-20
2003
2002
Increase of WAP (mil.)
Prediction of Working Age Population
20
15
10
5
0
-5
-10
-15
Rural
2049
2045
2041
2037
2033
2029
2025
2021
2017
2013
2009
2005
Predict2
2001
1997
1993
1989
1985
1981
Predic1
1977
1973
1969
1965
65
1961
1957
1953
1949
Dependence ratio (%)
Vanishing Demographic Dividend
Predict3
60
55
50
45
40
35
Labor Shortage & Wage Increase
Rapid Growth of Labor Demand
Urban migrant workers
Urban resident workers
450
400
350
300
250
200
150
100
2010
2009
2008
2007
2006
2005
2004
0
2003
50
2002
Urban employment (mil.)
500
Employment growth rates (%)
Demand Grows Faster than Supply
9
Secondary
Tertiary
8.3
7.6
8
6.8
7
6.1
6
5
4
3.7
4.2
4.7
5.2
3
2
1
0
8%
9%
10%
Annual growth scenarios
11%
Widespread Shortage of Migrant Workers
1800
35
1600
30
1400
1200
25
1000
20
800
15
600
Grain
Manuf.
Pig farm
Year
Construction
2008
2007
2006
2005
2004
0
2003
0
2002
200
2001
5
2000
400
1999
10
Coton
Migrants
Non-agricultural wages
(yuan/month)
40
1998
Agricultural wages
(yuan/day)
Wages Increases in All Sectors
Supportive Policies for Wage Increase
• Efforts on income distribution
• Widening social security coverage
• Increasing minimum wages (13% annual
growth for 12th Five-year Plan period)
• Labor market institutions (collective
bargaining; workers’ biased judge in
labor disputes)
ro
nm
en
tp
Margin reduction effects by labor cost (%)
ro
te
co
ct
tt o
io
n
n
sp
in
n
co
a l in g
ro
m
a d in
tr a i n g
ns
po
r
w ga t
oo r m
ls e
co
n s p a p in nt
ni
um ss
m e ng ng
er er
c v
in
te he m an
gr
ic
at
e d a ls
c
sh ircu
co
ip
it
ns
tr u m b ui
c t ac ld i
io h i
n
n ne g
h e m a to
ch ol
av
in
y
e
m
ac r y
hi
m
ea ne r
y
ch t p
e m ro
ic du
al ct
ag
en
ts
co p
m or
po t
ne
ra
nt
il w
a
a y ir
tr po
w
a t an s rt
er
p
tr a or t
ro
a d ns p
a n o rt
d
br
id
ge
en
vi
Profit Drop Caused by 20% Increase
in Labor Cost (SWS, 2010)
70
60
50
40
30
20
10
0
Impact on Trade Surplus
• According to economist at Deutsche
Bank, increase in labor costs in laborintensive manufacture will generate
similar effect as RMB appreciation. It is
estimated that demographic factor will
contribute half of the trade surplus
reduction. In 2016, there will be no more
surplus but deficit
Whither Labor-intensive Industries?
2050
Vietnam
2045
2040
2035
2030
2025
China
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
Neighboring Countries as Destinations
100
India
90
80
70
60
50
40
30
Most Likely, Regional Flying Geese
Wages Differentials Will Exist
1300
JX
QH
GS
1200
SXX
YN
HLJ
1100
NMG
HEN
XJ
SX
1000
GZ
AH
GX
900
SC
HN
HB
800
SD
HUB
FJ
BJ
700
NX
LN
ZJ
600
HAN
East
Central
West
500
CQ
JL
TJ
JS
SH
GD
400
2003
2005
2006
2008
2009
0
8
16
24
32
40
Age Structure of Agricultural Labor
40 over
50%
16-20
9%
21-25
1%
26-30
9%
31-40
31%
It Takes Time for Newcomers to Pick Up
Iran
2%
India
30%
Turkey
2%
Nigeria
3%
Mexico
3%
Indonesia
6%
Pakistan
4%
Egypt
2%
Philippines
2%
Vietnam
2%
China
40%
Bangladesh
4%
Industrial Transfer Has Happened
100%
95%
90%
85%
80%
75%
Distribution of Labor-intensive Manufacturing
East
Central
West
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
70%
Upgrading and Catching up
K
L
H
DR
TFP
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
TFP: Sustainable Source of Growth
100%
80%
60%
40%
20%
0%
Gap in Innovation: R&D Expenditure
R&D as percent of GDP
3
2.5
2
1.5
1
0.5
e
ag
me
Wo
rl
d
av
er
in
co
Lo
w
om
e
in
c
le
dd
Mi
Hi
gh
in
Ch
in
a
co
me
0
Gap in Innovation: R&D Personnel
R&D staff per 1000 people
45
40
35
30
25
20
15
10
5
0
China
High
income
Middle
income
Low
income
World
average
Gap in Innovation: # of Patents
Patents per mil. people
900
800
700
600
500
400
300
200
100
0
China
High
income
Middle
income
Low
income
World
average
Huge Gap in Human Capital
16
Years of schooling
14
12
10
8
6
4
China
USA
Japan
2
15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63
Age
Advantage of Backwardness
• Two definitions for globalization: (1)
global expansion of trade, (2) globe-wide
flows of knowledge/ideas
• China ends the former and begins to
utilize the latter
• Implication for advanced countries is
how technology can be bound with FDI
Migrants: Next Giant Consumer
Size and Composition of Migrants
• Migrant workers left home township for 6
months increase to 160 million in first
half of 2011 and 2/3 are new generation
(born after 1980s), who are better
educated, earn more and consume more
2007
2006
2005
2004
2003
2002
2001
2000
1999
Non-agr share
1998
1997
1996
1995
1994
1993
1992
1991
1990
Population share (%)
Incomplete Urbanization
50
Urban share
40
30
20
10
Migrants’ Insecure Employment
285
180
Numbers
60
250
40
245
20
240
0
2010
255
2009
80
2008
260
2007
100
2006
265
2005
120
2004
270
2003
140
2002
275
Million
Days-f
160
2001
Days
Days-m
280
Low Coverage of Social Security
57.0
52.7
50
47.9
40.9
34.9
40
30
24.1
20
13.1
10
9.8
3.7
2.0
Urban workers
n
pe
ns
io
Ba
sic
ty
er
ni
M
at
ry
ju
in
k
W
or
m
ed
ic
al
ca
re
Ba
sic
pl
oy
m
en
t
0
U
ne
m
Coverage rates (%)
60
Migrant workers
Institutional Potential of Consumption
4500
Yearly consumption
(PPP$)
4000
3500
3000
2070.4
2500
2000
950.6
1500
1000
500
ric
h
Th
e
rb
an
ite
s
U
ig
ra
nt
s
M
Fa
rm
er
s
ty
ov
er
ff
p
O
Th
e
po
or
0
Thank you!