MNI BRIEF: Social Welfare Needs Upgrade As Population Declines

The most important task China faces is improving the social welfare system to address demand-side challenges as the population declines, Cai Fang, a member of monetary policy committee of People’s Bank of China, told MNI on the sideline of the China Development Forum 2023 on Saturday.

While China is still working on supply-side reforms, boosting consumption demand as a major driver of economic growth will be a long-term mission. This needs to be supported by a sound social welfare system, which could help reduce fertility costs, said Cai, a specialist in population economics. He said the demographic dividend has basically disappeared in China, which means the country must reply on productivity and innovation.

Cai told the forum that authorities should tolerate failure when they get involved in innovation and implement technology and industrial policies. Innovation should embrace creative destruction, and policymakers need to allow excess capacity to be eliminated and traditional technology to be replaced. The idea of not admitting failure means monopoly, he pointed out.