Will China’s Aging Population Destroy Their Economy?

Walking down the streets in Shanghai, the finance capital of China, you can’t help but be in awe of the high rises and the hustle and bustle of such a massive city. China, the world’s fastest growing economy that hit absurd rates of over 12% annual GDP, but has more recently been declining and hovering around 7% annual GDP. As China who has grown into more and more of a world superpower, could their aging population ultimately be their downfall, and ruin their vibrant economy? According to a report from the United Nations (UN), China is aging more rapidly than any other country in the world, whereby 2050 almost 50% of China’s population could qualify for retirement (aged 60 years or older)[1]. This number is startling, and what is even more off-putting is the lack of transparency from the Chinese government on how to handle this situation. So how could this affect China, the 2ndbest economy in the world? Will it unravel China as the country they are today, or will it be a minor speed bump that they can merely overcome?

The first factor that is troubling for China’s future is the slowing growth rate. As stated before China’s growth rate hit 12% around 2011, and since has slowly been declining. Trading Economics indicated that China’s 2016’s growth rate was the “weakest in 26 years” as it only hit 6.7%, being the lowest full-year expansion since 1990[2]. Also, investment in fixed assets grew by only 8.1%; this was the lowest since 1999[3]. Both of these are troubling statistics to what the future may hold for China and their vibrant economy, especially in the increasingly threatening economic and political environment, as trade wars may be brewing between China and the United States.

Next, China’s growing debt is starting to worry many that are looking at the country. Most recently China’s debt gained the attention of Moody’s Investor Service and S&P Global Ratings as both cut China’s credit rating, citing their growing deficit as a significant risk moving forward. The reason they feel China’s debt is a such a vital issue is that China has accumulated debt very quickly, a Goldman Sachs report shows that China is “already in the top 2 percent of credit expansions”, and Goldman also feels that their report may have underestimated. Even with all these warnings signs, China shows no signs of stopping, in a Bloomberg article, China’s Finance Ministry has brushed off these warnings signs with ambiguous quotes like, “people overestimate China’s economic difficulties” or “the government is fully capable of maintaining financial stability”[4]. While it is still too early to know if China will crumble from their excessive debt, Bloomberg estimates that China’s debt to GDP rate will reach new heights of almost 280% by 2018[5], a massive number that could put many other countries at risk.

As we can see, both of these factors could play a major part regarding caring for an aging population. China’s government wants to keep GDP growth above 6.5%, and the state will continue to print money to subsidize companies to reach this goal, ultimately taking on more debt.  How will the Chinese government act when they have to decide soon whether to cut spending from subsidizing or to help pay for hundreds of millions of people that are rapidly approaching retirement age? Kenneth Rapoza put it best when he tries to answer this question by saying, “China’s aging population is as big a worry as its debt bomb, if not more so, because China can make its debt disappear at the stroke of a pen, but the government cannot make millions of elderly and retirees disappear[6]” … or can it? Maybe they really do have an ancient Chinese secret.

Michael Aland

Tulane University – MBA Candidate 2018

[1]http://www.un.org/en/development/desa/population/publications/pdf/ageing/WPA2015_Report.pdf
[2]https://tradingeconomics.com/articles/01202017023653.htm
[3]https://tradingeconomics.com/articles/01202017023653.htm
[4]https://www.bloomberg.com/news/articles/2017-09-21/s-p-lowers-china-s-rating-to-a-from-aa-says-outlook-stable
[5]https://www.bloomberg.com/news/articles/2018-02-08/sizing-up-china-s-debt-bubble-bloomberg-economics
[6]https://www.forbes.com/sites/kenrapoza/2017/02/21/chinas-aging-population-becoming-more-of-a-problem/#aafeed7140f3