The key to responding to population aging is to formulate and implement appropriate economic development strategies and policies. Photo: IC PHOTO

As population aging intensifies in China, concerns are mounting about its economic implications. These concerns include pressure on the pension system amid the country’s risk of “getting old before getting rich,” labor shortages—particularly among young workers—and potential threats to technological innovation and sustainable economic development. Theoretical discussions on the economic impact of population aging in academia usually start with analyzing the relationship between aging and factors of economic growth, readily concluding that population aging exerts a negative impact on economic growth. However, empirical data in China suggests that this negative impact may be overstated, with some empirical research even indicating that aging could yield positive economic effects.

The inconsistency between theoretical analysis and empirical research reflects two noteworthy problematic tendencies in research on the economic impact of aging in China. First, empirical research has failed to measure aging comprehensively: the aging problem has been simply measured and evaluated by the proportion of the elderly population, while ignoring other changes to demographic endowments during the aging process. This has hindered a scientific judgment of the nature and extent of the economic impact of aging. Second, when exploring how aging exerts impact, theoretical analysis has failed to refer to the specific stage and characteristics of economic development, particularly neglecting China’s unique development experience. Consequently, certain patterns have been established for the mechanism and path of aging, while ignoring the impact of various non-demographic factors on aging, such as the economic system, social policy, cultural differences, the family model, the pension system, and social governance.

First tendency

Population aging is not merely an increase in the proportion of elderly people; it marks a systematic transformation of demographic endowments. However, some empirical research has failed to fully grasp this complexity.

As the proportion of the elderly grows, the proportions of other age groups also shift accordingly. Typically, an increase in the elderly population coincides with a decrease in the labor force, a rise in the old-age dependency ratio, and the burden of elderly care intensifies. However, in reality, the causes of population aging, especially its dominant factors, vary with countries. As a result, the increase in the elderly population and the decrease in the working-age population do not necessarily occur simultaneously.

In fact, China reported simultaneous increases in the working-age population and the elderly population over a long period of time. Between 2000 and 2010, the proportion of people aged 65 and above in China increased by 1.9 percentage points, the working-age population increased by 4.4 percentage points, while the proportion of children dropped significantly by 6.3 percentage points. During this period, due to the greater decline in the youth dependency ratio and the significant decline in the total dependency ratio, aging did not increase the total dependency burden on the population. This differs vastly from the population aging process reported in developed countries.

China’s unique aging pattern stems from general factors like declining mortality rates and specific factors such as rapid birth rate reductions due to past family planning policies. Thus, analyzing population aging requires examining not only the growth of the elderly population and its proportional increase, but also changes in the working-age and young populations, as well as aging trends within the working-age population. Only in this way can we fully understand the changes in population age structure that accompany the aging process.

While the proportion of the elderly population is increasing, the quality of the population across all age groups is also improving. The direct cause of population aging is declining fertility and mortality rates, both of which have a positive impact on population quality—not only by improving health, but also by encouraging greater investments in education and human capital across society, including by the government and families. The decline in fertility rates reflects a shift toward prioritizing the quality over the quantity of children within families. Declining mortality rates and longer life expectancy create a strong incentive for education and human capital investment.

While aging might increase the burden of elderly care and squeeze education and health investment at a certain point, in the long run, all countries will rationally choose to increase human capital investment to cope with population aging. Therefore, understanding changes in population quality is vital for a comprehensive assessment of the economic impact of population aging.

As the elderly population increases, the elderly’s health status and other socioeconomic characteristics will also undergo significant changes. From a development perspective, each successive cohort enjoys better conditions than previous cohorts in terms of their health status, education level, social security status, and income status. This generational variation highlights the heterogeneity within the elderly population. Many negative perceptions of aging stem from outdated stereotypes shaped by past experiences, thus when studying the impact of population aging, it is necessary to take into account the aforementioned cohort changes.

Population aging is a complex process of demographic change. The changes in demographic endowments during population aging vary with countries, and there is no standard model. The impact of aging on economic development is essentially the comprehensive impact on changes in demographic endowments. It is unreasonable to interpret the economic impact of aging as the result of an increase in the share of the elderly; conversely, interpreting empirical results—where the core independent variable is the proportion of the elderly population—as capturing the full impact of aging on economic development is equally flawed.

Second tendency

The second tendency is that the heterogeneity of real economic development is not given sufficient consideration in some studies. The process by which population aging affects economic development is highly complex, and the nature and extent of this impact depend on the state of economic development itself, as well as the alignment between demographic endowments and the characteristics of economic development.

First, the state of economic development determines the role of demographic endowments in economic growth. At different levels of economic development, variations exist in industrial structures and technology levels, as well as in modes and drivers of economic growth, all of which affect the contribution rates of labor, capital, and total factor productivity to economic growth. At various stages of economic development, the dominant mechanisms through which aging affects the economy also vary. The impact pathways of population aging should be analyzed within the specific context of industrial development to test the nature and extent of its actual effect. The economic effects of demographic endowments are determined by how they align with the characteristics of economic development.

In addition, the economic impact of population aging also depends on approaches taken to address it. Different strategies and policies will lead to different economic consequences. Specifically, the phenomena of “getting old before getting rich” and “getting old before getting prepared” can lead to contradictions between the demand for elderly services and security and economic development, resulting in a competition between social investment in elderly care and investment in economic development.

However, proactively addressing aging can also transform the demand for elderly services and security into an opportunity and driving force for economic development. For example, the government’s strong support for the silver economy can better meet the elderly’s growing needs for a better life, while also cultivating new economic growth points. The kind of development strategy and policy to be implemented will determine whether population aging inhibits the contribution of consumption to economic growth.

Moreover, the short-term and long-term effects of aging on economic development are different. The short-term impact stems primarily from the direct economic impact of the increasing elderly population, while the long-term impact depends on the combined effect of changes in demographic endowments, government policy intervention, and spontaneous regulation by the market during the aging process. Therefore, the long-term impact carries greater uncertainty than the short-term impact. Rapid aging has compressed the timeline for the increase in the proportion of the elderly population, which exerts significant and potentially negative effect on the economy in the short term. However, in the long run, aging will drive innovation, technological progress, and corporate operations, bringing corresponding changes in the macroeconomic structure and micro-production system. Coupled with the government’s guidance and support, the long-term economic impact of population aging will be more moderate and positive.

Implementing national strategies

The economic impact of aging is subject to not only the state of economic development itself, but also the response of the government and society. The process through which aging influences economic development is also one in which economic development constantly adjusts to aging. The variations in economic performance among different countries during the aging process are less a result of aging itself and more a reflection of the economic system and policy responses to it. Although theoretical analyses of the mechanisms and pathways by which aging affects economic development are universal, the outcomes can vary greatly. Differences in government and societal responses to aging further increase this uncertainty.

China has been pursuing a proactive national strategy in response to population aging. This requires providing security for the elderly, facilitating a more equitable and sustainable social security system, and creating a high-quality system of elderly care service and product supply. It is necessary to promote healthy aging and build an age-friendly society. It is also important to develop an economy suitable for an aging society and implement the innovation-driven development strategy to comprehensively enhance the intelligence level of the industrial system within the national economy. Furthermore, it is advisable to promote the development and utilization of human resources, to achieve higher-quality, fuller employment. Improving the effective supply of labor in the context of an aging population is also crucial, along with promoting economic development that adapts to these demographic shifts.

Given that population aging is an irreversible objective trend, economic development must adapt accordingly, highlighting the necessity of promoting high-quality population development that enhances demographic endowments while aligning with the new normal of population dynamics. This innovative approach recognizes that population development is challenging to alter due to its inherent inertia, making it more feasible to adjust the economy instead. The key to proactively responding to population aging is to formulate and implement appropriate economic development strategies and policies in reference to demographic endowment changes brought about by aging and the characteristics of economic development itself. This can delay and mitigate adverse effects of aging and promote sustainable economic development.

Chen Weimin is a professor from the School of Economics at Nankai University.