China's demographic landscape is undergoing a profound transformation as the country reports its population shrank for the second consecutive year in 2023, a trend that is adding to the challenges faced by the world's second-largest economy. The National Bureau of Statistics (NBS) revealed a record low birth rate of 6.39 births per 1,000 people, the lowest since the founding of Communist China in 1949. This decline to 1.409 billion people, a drop of 2.08 million from the previous year, exacerbates the already pressing demographic issues in China.
The birth rate decline is not an isolated phenomenon but part of a larger trend. The number of births in 2023 was 9.02 million, down from 9.56 million in 2022. According to Larry Hu, chief China economist for Macquarie Group, the sharp decline is partly due to lockdowns, and while a rebound is possible in 2024, the structural downtrend remains unchanged.
China's economy grew by 5.2% last year, barely meeting the government's target of around 5%. This modest expansion comes on the heels of one of China's worst economic performances in over three decades. The birth rate decline and economic slowdown have caused significant market reactions, with Chinese stocks tumbling following the data release.
The demographic shift comes amid an array of economic challenges, including investor exodus and deflation, necessitating structural changes in the economy. Sectors such as health care and housing will need to be reshaped to adapt to the changing population dynamics.
Despite the gloomy demographic outlook, there were some positive economic indicators. In the fourth quarter of 2023, China's GDP expanded by 5.2%, and industrial production saw its fastest growth since February 2022. Retail sales also showed signs of recovery, increasing by 7.4% in 2023, reversing the 0.2% drop in 2022.
The decreasing birth rate and shrinking workforce present twin challenges for the Chinese government. The population over 60 years old continues to expand, now comprising more than 297 million people, or over one-fifth of the total population. This aging demographic shifts the focus to the "silver economy," with the State Council issuing guidelines to support facilities and services tailored for the elderly.
The demographic trends in China are drawing international attention, particularly as India surpasses China as the world's most populous country. The United Nations forecasts that China's population will shrink by 109 million by 2050, a more than threefold increase from their previous forecast in 2019.
Addressing these demographic shifts, China has taken steps to encourage childbirth, including policies like tax deductions, longer maternity leave, and housing subsidies. However, high childcare and education costs, combined with job market uncertainties, continue to discourage many couples from having children.
The demographic downturn and its accompanying economic challenges will require China to navigate a complex path forward, balancing the needs of an aging population with the imperative to sustain economic growth and stability.
