China's declining demographic dividend to hit exporters most

16:10, November 05, 2010      

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China's demographic dividend, the sufficient labor force in the whole population, is diminishing, which will cause a negative impact on some industries and will affect foreign trade enterprises the most. Therefore, the transformation of the economic development mode will become more important.

Wei Fengchun, chief macroeconomic analyst at the China Securities Corporation, pointed out that once the demographic dividend weakens, many labor-intensive industries, especially foreign trade enterprises in coastal areas, will be greatly affected.

Cai Fang, director of the Institute of Population and Labor Economics under the Chinese Academy of Social Sciences, argued that in the past 30 years, the main driving force for foreign-funded enterprises in China has been the demographic dividend.

A large amount of the surplus labor force from rural areas has moved to developed areas, with migrant workers accounting for nearly 47 percent of the employed population in the secondary and tertiary industries and 80 percent of that of the construction industry. The abundant labor resources and cost advantage have made China the "engine" of the world factory and world economic growth.

However, these advantages will gradually disappear due to the weakened demographic dividend. Wei said that from a macroscopic viewpoint, the gradually weakened demographic dividend will greatly influence investments and exports. In terms of exports, China's labor-intensive products have a great export advantage.

Among the main developing countries, the labor cost in China's coastal areas is between 0.86 and 0.94 U.S. dollars per hour in 2008, which is far higher than that of its competitors, such as India, Vietnam, Pakistan and Bangladesh, while the labor cost in the Chinese inland is about 0.5 to 0.8 U.S. dollars per hour, approximately equal to that of India.

The slowdown of the growth rate of China's exports in labor-intensive industries has become a trend due to rising labor costs. In addition, as the demographic dividend is gradually weakening, the savings rate will continue to decline and the high rate of investments will also give way to a high consumption rate, indicating the decline of investment growth in the future.

The gradual weakening of the demographic dividend also makes the transformation of the economic development mode an important issue in the current economic operation. Meanwhile, the transformation of the development mode is also an important part of the 12th Five-year Plan.

The proposal of the Communist Party Central Committee regarding the 12th Five-year Plan pointed out that China should insist on taking the strategic adjustment of economic structure as the main direction of accelerating the transformation of the economic development mode.

China should also establish a long-term mechanism to expand domestic demand and promote economic growth based on balanced momentum in consumption, investments and exports.

"Taking dealing with the 'labor shortage' problem as a turning point, the industrial upgrades and transfers in China’s coastal regions and the industrial transfer in the mid-western region of China will speed up. This will be conducive to promoting the optimization of industrial structure and the sustainability of economic growth,” Cai said.

Zheng Xinli, deputy executive director-general of the China Center for International Economic Exchanges, said that the commitment on transformation from the "growth" mode to the "development" mode stressed in the 12th Five-year Plan needs be translated into action.

The original transformation of the economic growth mode mainly refers to achieving the transformation through the restructuring of production factors, while the transformation of the economic development mode will take place in at least three aspects, namely demand structure, supply structure and the structure of production factors.

By People's Daily Online


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