Aim for China's second demographic dividend

09:02, November 23, 2009      

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China should make greater efforts to transform its huge population from a quantitative to a qualitative advantage to cement a foundation for lasting economic prosperity.

The "demographic dividend" has long been thought an important source of China's remarkable economic performance. According to World Bank estimates, China's advantageous population age structure brought about by such a dividend has contributed more than 30 percent to the country's economic growth over the past decades.

However, with the transformation of its population structure, the country's traditional economic development model has come under severe pressure. As its economic growth experiences profound changes, catalyzing the second "demographic dividend" and creating a sustainable development formula is a pressing task for the world's most populous nation.

Over the past decades, China enjoyed a productive population age structure, with working-age people making up a large part of its population while retired and pre-working-age people were a relatively small fraction. As a result, the country enjoyed an endless supply of labor and also carried a comparatively light pension burden. Such a productive population age structure, characterized by abundant labor forces and a high savings ratio, proved to be a dynamic source of economic growth and consequently took the country into a long "golden period" of economic and social development.

International experiences also indicate that most developed countries and regions have more and less benefited from similar demographic dividends in their development. In what Rand, a non-profit American think tank that provides policy and decision-making consultations on global issues and challenges, describes as an "East Asian miracle", a high proportion of the working-age population contributed to their gross domestic product by a third and even as high as half from 1970 to 1995. This is also the case in parts of North America. In the initial development of the "New Land" of the continent, 90 percent to 100 percent of their development advantage over the "Old Land" was attributed to their more productive population age structure.

Nevertheless, the demographic dividend that bolsters economic growth does not last forever. All countries, developed or developing, eventually face an aging population. An aging society inevitably results in the disappearance of high productivity and high savings of the special population age structure in a particular period of time. According to United Bank of Switzerland studies, the growth of China's population would be on a decline after 2015, which means the benefits the country has long enjoyed from its demographic dividend would be on the wane. Sample survey showed people aged 60 and above took up about 13 percent of the Chinese population by 2007.

The gradual disappearance of the country's "demographic dividend" means that the injection of production elements alone would not maintain much-needed sustainable economic growth. It also means that the country should make some tangible adjustments in all fields related to human resources, in particular in division of labor, industrial and employment structures, as well as in savings, consumption, investment, income distribution and social security policies.

For a long period, China's abundant and inexpensive labor force played a positive role in helping domestic enterprises gain a sharp edge over foreign counterparts in manufacturing inexpensive and labor-intensive products for domestic and overseas markets and enjoy a comparatively long period of growth. That also helped make up for the country's capital insufficiency and contributed much to its economic advancement. However, such a low-end production model has also added to domestic enterprises' dependence on increased injection of labor forces, capital and other factors of production for growth.

Under these circumstances, China should try to transform its quantitative demographic dividend to a qualitative one that is based on accumulation of human capital, full-fledged development of manpower and improved efficiency in all factors of production. To this end, China should cultivate the concept of placing development of human resources in paramount position and develop them into the driving force of the country's economic and social development to avoid the vicious "low income-low educational input-low productivity-low income" cycle.

The country should focus on developing the manufacturing and service sectors that help increase employment quality and improve human resources development in the effort to promote employment expansion in the process of sustainable economic growth.

In addition, concrete efforts should be made to push forward long-overdue reforms on education, employment, residence and pension systems to remove institutional obstacles in the way of human capital development.

The long-anticipated second demographic dividend, which is to be realized by the accelerated formation of human capital, upgrading of industrial structure, technological progress and social security changes will help the country's transformation from an extensive to an intensive economic model.

The author is an economics researcher with the State Information Center.

Source: China Daily
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