Will China Grow Rich Before It Grows Old? The Graying of the Middle Kingdom

China has achieved one of the longest life expectancies among low-income countries—long regarded as a development success. But longevity, combined with the one-child policy, is now generating a demographic trajectory with serious economic consequences.

By 2040, the United Nations projects that the share of elderly in China’s population will rise to 28%. That translates to 397 million Chinese citizens over the age of 65—more than the combined current populations of France, Germany, Italy, Japan, and the United Kingdom. Of these, approximately 100 million will be over 80, an age at which some form of disability is the norm rather than the exception.

Aging alone is not the problem. The problem, as a CSIS research report titled “The Graying of the Middle Kingdom” makes clear, is that China is on track to become the first major country to grow old before it grows rich. Every previous aging society among today’s advanced economies accumulated substantial wealth before its demographic transition peaked. China is running that sequence in reverse.

The pension arithmetic is already strained. Three out of four Chinese workers currently have no pension coverage at all. For those who do, combined payroll tax rates reach 50%—a figure that creates powerful incentives for employers and workers alike to operate underground and evade the system entirely.

Beginning around 2015, China’s postwar baby boom generation will begin reaching retirement age. Because of the one-child policy implemented since 1980, the working-age population will simultaneously start to shrink. By 2050, China could lose between 18% and 35% of its workforce depending on whether fertility rates stabilize at 1.8 or fall to 1.35.

“If you stop, you’re dead,” said Chinese economist Fan Gang, summarizing the bind: Chinese leaders must deliver growth to create jobs for young people today, while also building the fiscal capacity to support an elderly population that will be historically unprecedented in both size and poverty.

The structural tension is real. A pay-as-you-go pension system requires a stable or growing ratio of workers to retirees. Hiking tax rates to fund elderly support assumes a level of national wealth that China has not yet achieved. Neither instrument is available at the scale required. The window to build a funded pension system before the demographic peak arrives is narrow and closing.