China hits the east Asian demographic wall

When I published a bullish book about Asia in 2016, I felt I had good answers to all the sceptical questions except one. What about China’s demography? The cliché was that China will “grow old before it grows rich”. Like many clichés, it turns out to have some truth to it. 

For all the talk in Beijing of a unique “China model”, the country’s economic history bears a striking resemblance to the trajectories of Japan and South Korea. The take-off phase is driven by rapid, export-led industrialisation and low-cost labour. The slowdown is closely linked with the ageing and shrinking of the population.

There is a plethora of western commentary about the risks of the “Japanification” of China’s economy — in particular, deflation, property market bubbles and a debt crisis. But the social parallels with Japan and South Korea should also worry China. All three suffer from very low fertility rates, leading to a shrinking and ageing population that adds to the strains on the economy. 

China’s “one child policy” — adopted in 1980 and abandoned in 2016 — accelerated the onset of an ageing society. But Japan and South Korea also hit the demographic wall without official intervention. South Korea now has the lowest fertility rate in the world, with the average woman having just 0.78 children. The 1997-98 Asian financial crisis, which cast a shadow over the prospects of many young people, seems to have been a turning point, making them even more reluctant to have children. 

Japan, South Korea and China all have hyper-competitive exam-driven education systems. As opportunities narrow, an increasing number of young people are tempted to opt out of the rat race. In Japan, a recent government study found that 1.5mn people, or more than 1 per cent of the adult population, have withdrawn from society altogether and almost never leave their homes. The problems of these hikikomorioften started with feelings of failure and unbearable social pressure in young adulthood.

Some of that will sound disturbingly familiar to the Beijing authorities. As China wrestles with a slowing economy and youth unemployment of more than 20 per cent, a growing number of young people are giving up on the race for a diminishing number of rewarding jobs and instead opting to “lie flat”.

Japan’s population began to decline in 2011 and South Korea’s in 2020. Last year it was China’s turn to record its first population decline in 60 years. Worryingly for the Chinese authorities, their population slide has begun at a lower level of average wealth than in their East Asian neighbours.

The Chinese government is now desperately trying to boost the birth rate. But the experiences of Japan and South Korea show how hard that will be. In fact, China’s demographic situation could get worse, since young people who cannot find jobs or afford a flat are even less likely to start a family.

In an effort to ease the pressure on Chinese youngsters and to reduce the cost of raising children, President Xi Jinping severely restricted the private tutoring industry in 2021. But this had the perverse effect of damaging one of the largest sources of employment for young graduates.

Last week, the Chinese government came up with a new response to the problem of rising youth unemployment. It decided to stop publishing the figures. That step underlines a crucial difference between China and its main East Asian neighbours. Japan and South Korea are established democracies. But China’s slowdown will take place in a giant one-party state with sound historical reasons to worry about discontent among the young.

Student demonstrations rocked China in 1919 and 1989, when they were brutally suppressed. Students were at the heart of the Hong Kong protests of 2019-20, which were also crushed. It was street demonstrations by the young that persuaded Beijing to abandon its “zero-Covid” policies last year.

China’s surveillance state almost certainly has the means to contain student agitation and protest movements. But democracies, such as South Korea and Japan, have more safety valves for dealing with social discontents and more latitude for political experimentation.

In 2017, South Korea’s President Park Geun-hye was impeached and removed from office. She was later given a long prison sentence for corruption. In the 20 years after the bursting of its financial bubble in 1989, Japan cycled through 14 prime ministers. 

China’s paranoid one-party system does not have that flexibility. Xi’s encouragement of a cult of personality — and his triumphalist rhetoric about the “great rejuvenation of the Chinese people” — will make open public debate about the country’s complex social and economic challenges all but impossible.

Xi’s own instincts are to elevate national security and political control above economic growth. His efforts to speak to the rising generation also sound increasingly out of touch. The suggestion that discouraged youngsters should “eat bitterness” is unhelpful. His nostalgia for the character-strengthening glories of the Cultural Revolution are likely to seem irrelevant to those born into an entirely different China. 

Despite their problems, Japan and South Korea have remained stable and prosperous countries. China may find that its own transition to an ageing and slower growing society is considerably more difficult and turbulent.

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