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Population aging in China calls for structural reform

Author  :  CHI FULIN     Source  :    Chinese Social Sciences Today     2019-08-06

China, a large country with a population of nearly 1.4 billion, has witnessed historic changes in its population structure, which has brought about a series of deep-seated structural problems and challenges. How to effectively use structural reform to cope with the challenges brought by aging to economic growth and how to properly address the old-age security of hundreds of millions of people in the course of economic growth deserve our deep consideration.

Prominent structural contradictions

Being still in a critical period of transformation and development, China prioritizes economic growth, but security for the elderly is an increasing concern. The structural contradiction between economic growth and elderly care has become an important issue for China’s development.

On the one hand, China has entered a critical stage for economic transformation and upgrading. Preliminary estimates show that there is still huge room for the transformation and upgrading of China’s industrial structure, urban and rural structure, and consumption structure, which will create huge new markets. It is expected that the economy will grow by 5–6% in the next 10 years or so. On the other hand, China will still be in the stage of rapid population aging throughout the next decade or so. In 2018, China was home to 250 million people aged 60 or above, of which 167 million were aged 65 or above, accounting for 11.9% of the total population. In the coming period, the accelerating aging process will make China’s elderly care problem more serious.

The scale of China’s aging is unprecedented, and the degree of the mismatch between the aging stage and the development stage is rare in human history. Given the fact that “getting old before getting rich” poses a major challenge to China’s economic and social development, China is in urgent need of an approach that can balance economic growth and elderly care security.

The historic change of the population structure has brought some challenges to the sustained and sound development of China’s economy in the medium and long term. From 2013 to 2018, China’s working-age population dropped by 25.6 million, which will drop by 200 million by 2050 according to the United Nations. Data shows that over the past seven years, the proportion of China’s labor force aged between 50 and 64 has increased by about 3.3 percentage points, while the growth rate of unit labor output has decreased by about 2.3 percentage points.

The acceleration of the aging process of the population has brought about the rapid growth of service-oriented consumption across the board. The “silver economy,” which contains huge space for the development of industries, has become an important driving force for China’s economic growth. However, from the supply side, the total supply of elderly care products and services in China is characterized by its insufficient supply, unreasonable structure and low level. So it has become one of the tasks of supply-side structural reform to transform the consumption demand of the elderly, which is expanding rapidly in an all-around way and escalating continuously, into real momentum for industrial development and economic growth.

Demographic changes also pose a dilemma for China’s macroeconomic policy. Under the situation of increasing downward economic pressure and accelerating aging, the decision space and flexibility of macroeconomic policy are limited in both directions. Taking fiscal policy as an example, on the one hand, more tax cuts and fee reductions are needed to promote economic growth so as to effectively achieve market vitality. On the other hand, the increasing degree of aging requires an expansion of the scale of public expenditure on the elderly. Faced with the structural contradiction between growth and elderly care, China’s fiscal policy is going to be facing the dilemma of promoting tax cuts and fee reduction while expanding aging related expenditures for quite a long period of time.

Working out contradictions

First, we need to adapt to the changing trend of the population structure and speed up the adjustment of population policies and the structural reform of the labor market. One task is to reform the current retirement system and implement flexible retirement policies. International experience indicates that China needs to implement a flexible retirement system with a wider scope as soon as possible, which will not only help delay the onset of the labor gap, but also alleviate the pressure of pension payments. The second task is to improve the childbearing policy as soon as possible. On the basis of the current childbearing policy, policies that encourage childbirth, such as maternity leave, paternity leave, medical insurance for pregnant and lying-in women, maternity and pediatric medical care, and flexible working hours for pregnant and lactating women shall be implemented gradually. The establishment of a long-term incentive system such as a family tax deduction and exemption will be accelerated, thus promoting a significant increase in the fertility rate. The third task is to provide migrant workers with the same basic public services and welfare benefits as urban workers as soon as possible. Only when migrant workers are integrated into cities can a stable and efficient industrial workforce be formed.

Second, we need to adapt to trends in the demand structure and accelerate the adjustment of policy focusing on the opening of the service industry market. This will not only solve the contradiction of the shortage of service supply, but also effectively increase the potential for growth. In the past few years, China has launched a series of policies to liberalize the elderly service market. Looking into the future, it is necessary to further accelerate the opening of the service industry market focusing on elderly care services to cope with the challenges of aging more effectively, so as to adapt to the rapid growth and escalation of diverse and personalized demand for elderly care services. We should further break down the market barriers related to elderly care services and introduce advanced international standards in the field of elderly care and medical care. Additionally, it is essential to deepen the reform of public pension institutions. Some public pension institutions with low utilization rates and idle resources can be transformed into social capital to operate.

Third, we need to effectively cover the shortage of funds for elderly care services by focusing on long-term care insurance. International experience shows that long-term care insurance is an institutional arrangement to meet the growing demand for nursing care in an aging society, and it is also a crucial method for covering the shortage of pension funds.

Finally, we need to expand the macro policy space so as to coordinate regional development and urban and rural development. The flow of young labor from rural to urban areas and from underdeveloped areas to developed areas has resulted in the “urban-rural inversion” of population aging and the “regional inversion,” which features a high degree of aging in underdeveloped areas and a low degree of aging in developed areas. This is a space for policy to solve the growth and elderly care problems. For example, accelerating economic growth and social development in the central and western regions through preferential regional development policies, supplemented by population policies, employment policies and tax policies, can actively attract more labor from the eastern regions to the central and western regions. That is how we can disperse the risk of population aging.

Forming a joint force

Without the joint participation of various parties, it will be difficult for China to handle the dual task of achieving economic growth while improving elderly care. This requires the government to mobilize various parties and give full play to the role of society and enterprises, forming a joint force to address the challenges of aging.

One approach is to leave room for the community to take initiative. First, we should increase the investment in community elderly care services by improving the proportion of state and provincial pension funds used to subsidize the construction of community home-based elderly care service facilities. Second, communities should be encouraged to set up various types of social organizations providing elderly care services and be given preferential policy support in terms of funding, tax, supervision and management, undertaking the government’s transfer of pension functions and public services. Third, we should advocate and carry forward the culture of mutual assistance in communities. We need to guide and integrate social forces to participate in the construction of aging society through family self-help, neighborhood mutual assistance, social care and other forms.

The second approach is to fully mobilize enterprises to cope with the challenges of aging. At present, the reality that private elderly care institutions account for a relatively small proportion requires us to attract more social capital and foreign investment in elderly care institutions, making them an important force in supplying elderly care services. Meanwhile, we need to optimize the policy environment for the development of private elderly care institutions by purchasing services, issuing pension securities, tax credits and other means.

What is striking is that while the process of population aging is speeding up, China also has the opportunity of a new scientific and technological revolution. Some developed countries have taken the lead in adopting new technologies to reduce the manual dependence of elderly care services, which has played an important role in alleviating labor shortages and improving the quality of elderly care services. At present and in the coming period, internet-plus elderly care services such as remote care, telemedicine and remote health services should be encouraged to improve the quality of elderly care services in the central and western regions and rural areas. Communities, elderly care institutions, social organizations and enterprises should receive strong support in using such information technologies as the internet of things and big data, so as to develop smart elderly care.


This article was edited and translated from Economic Daily. Chi Fulin is president of the China Institute for Reform and Development in Hainan Province.



(Edited by CHEN ALONG)

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