China’s population is aging as rapidly as anywhere in the world and its low birth rate means it faces a significant population decline in the not too distant future. In part, China’s population will age because people are living longer, an important dimension of China’s great progress. But the country’s low birth rate is the most important reason for population aging, leading to a very top-heavy age structure with many elderly, fewer workers, and even fewer children.
The low birth rate and population aging mean China faces two important economic challenges. The first is maintaining economic growth and poverty reduction, while the second is ensuring economic security for hundreds of millions of elderly.
First, China needs to retool its approach to capital accumulation. High rates of saving and investment have been critical to fueling economic development, but wealth accumulated by State-owned enterprises and in sovereign wealth funds is not creating economic security for China’s elderly. China needs to refocus its efforts on building strong and successful pension funds that can meet the dual goals of supporting both economic development and economic security for the elderly. China doesn’t need to save more. If anything saving rates are too high. But China needs to save in a different way.
Read more at Population Matters.