MNI INTERVIEW: China Moves On Population Decline-PBOC Advisor

China needs to increase its efforts to boost wages and ensure employment, reducing inequality and rebalancing the economy towards consumption as the potential growth rate falls in a fast-approaching era of population decline, a high-ranking policy adviser to the central bank told MNI.

China’s population will begin to contract earlier than expected, after a natural population increase of only 0.34‰ in 2021, Cai Fang, a member of monetary policy committee of the People’s Bank of China, said in an interview.

While potential growth should remain above 4% until 2035, its trend will be down, and a smaller, ageing population will require more focus on demand after a period during which officials have focused on supply-side reform, he said, see: MNI BRIEF: China's Total Social Financing To Grow Faster In 2022.

China has unveiled its “supply-side structural reform” in 2015 announced by President Xi Jinping. As a key part of China’s economic policy framework, it focuses on eliminating excess capacity, including de-stocking, de-leveraging and cost reduction, while for demand side, the policy stance has been making some adjustments.

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But now, the policy-making must pay more attention to demand side, the advisor said.

This key demographic milestone will take China’s economy into another “new normal”, in which labour supply not only contracts but workforce qualifications improve more slowly, and returns on capital and productivity decline, Cai said.

China’s growth rate began to fall from about 2012, as the working population aged from 15 to 64 decreased by 41.7 million between 2013 and 2020, he noted, calling for a drive to achieve the country’s goal of “common prosperity” and to lower the Gini coefficient to below 0.4 by 2035.

The proportion of the population aged 65 or more reached 14.2% in 2021, he said, adding that this poses another threat to consumption, given the lower propensity of the old to spend.

In the medium- to long-term, authorities should also promote more urbanisation by loosening “Hukou” restrictions limiting where citizens are allowed to live, a move which would tend to increase household consumption, he said.

Taxes, fiscal transfers and the provision of public services should also be calibrated to promote a flatter flat distribution in the interests of common prosperity, Cai said.