China’s shrinking pool of workers may limit economy’s recovery

Ma Jiantang

Ma Jiantang

China’s growth rebound may be capped by a labour force squeeze and shrinking resources that leave the government satisfied with rates of expansion as low as half the peak during the past decade.

A pace of 7 percent to 8 percent reflects economic forces, Ma Jiantang, head of the National Bureau of Statistics, said on Jan. 18 after reporting 7.9 percent expansion in the fourth quarter from a year earlier. He said a decline last year in the working-age population was of “great importance.”

Ma’s comments bolster the contention that China’s economy is permanently downshifting a gear as its one-child policy drives down the labour force. Slower growth presents challenges for incoming leaders Xi Jinping and Li Keqiang, and may limit the country’s potential as a market for everything from Australian iron ore to German machinery.

“A declining labour force is just one of several economic headwinds looming on the horizon,” said David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department, now an Asia analyst in Los Angeles at TCW Group Inc. “As Xi and Li assemble their economic teams, we’ll find out whether necessity will again be the mother of reforms, as it has been in the past.”

Fourth-quarter growth, while exceeding the median analyst estimate, brought 2012 expansion to 7.8 percent, the weakest pace since 1999. China stepped up infrastructure spending to reverse a seven-quarter slowdown, with fixed-asset investment excluding rural areas rising an inflation-adjusted 19.3 percent, compared with 16.1 percent in 2011, according to JPMorgan Chase & Co.

Demographic Shift

“In the past people always believed 8 percent or even 10 percent is necessary for China to maintain high employment and prevent mass unemployment, but demographic change is making the requirement for growth much lower,” said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. “Potential economic growth in China will slow to around 6 percent by 2020.”

China recorded average annual expansion of more than 10 percent over the last 20 years, peaking at 14.2 percent in 2007, according to previously released government data. Analysts forecast 8.1 percent this year and 8 percent in 2014, based on median estimates in a Bloomberg News survey last month.

Ma said at a press briefing that a 7 percent to 8 percent pace “will facilitate change in the growth model and structural adjustment.” Rural-to-urban migration, urbanisation and industrialisation will keep driving expansion, said Ma, 54, who in November was named first in line to join the Communist Party’s 205-member central committee of leaders if a vacancy arises.

Tighter Resources

At the same time, shifting supply and demand patterns in the labour market, increasingly tight natural resources and greater demands from residents to improve their quality of life will help determine the rate of expansion, said Ma, who was deputy governor of western Qinghai province before moving to the NBS in 2008.

Last year’s decline of 3.45 million in the labour force still leaves a base of 937 million, which “will remain as China’s biggest resource advantage,” Ma said. The United Nations has forecast a drop of about 24 million in the population aged 15 to 59 from 2015 to 2025, while people aged 65 and over will increase by about 66 million.

China’s average annual growth may slow to 7 percent in 2016-20 and 5.9 percent in 2021-25 “assuming steady reforms and no major shock,” the World Bank estimated in a report last February.

Growth Quality

The nation’s leadership said after an annual economic- policy meeting last month that it will seek a higher “quality and efficiency” of growth and omitted previous references to “relatively fast” expansion.

Li Keqiang, set to become premier in March, is championing a deepening of urbanisation as an engine of growth. City residents may account for almost two-thirds of the population in 2030, according to the World Bank, up from what the statistics bureau said was 53 percent at the end of 2012.

Even with the downshift in expansion, China will lead global growth this year and next and lift economies across East Asia, said Ken Courtis, founding chairman of Next Capital Partners in Tokyo and former vice chairman for Asia at Goldman Sachs Group Inc.

“The Chinese economy has clicked back into gear following a two-year, policy-driven period of moderation, which has guided the economy back to a healthy and sustainable growth rate,” Courtis said.

Family Restrictions

Maintaining that expansion may require easing a policy that has restricted most families to one child since 1979, with some signals in recent months that the government is considering a degree of relaxation. President Hu Jintao said in his report to the party congress in November 2007 that China must ensure a low birth rate. Five years later, he said the nation must “promote long-term and balanced population development.”

“The demographic situation and labour demand-supply pattern in our country are changing after decades of family planning,” Ma said on Jan. 18. “‘While we still have to stick to family planning as a national policy, it’s quite necessary to study proper demographic policy according to new changes in the situation.”

Categories: Finance & Economy

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5 replies

  1. Reblogged this on middlekingdom1of10boyz and commented:
    I can attest to this problem. We struggle with the our construction contractor having enough people all of the time. It looks like we are going to see greater opportunity for subcontractors in the nuclear industry. When the Chinese finally realize that they need subcontractors to finish this endeavor of reactors is anyone’s guess.


  2. Short termism is akin to nihilism. The one child per family policy in China, was bound to impact on the labour market.



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