Inflection point of demographic dividend appears (Part I) (2)

Economic growth will be quite different

Potential growth rate will fell to 7.2 percent during the 12th Five-Year Plan period (2011-2015) and 6.1 percent during the 13th Five-Year Plan period (2016-2020).

Cai thinks the disappearing of the demographic dividend will make Chinese economy undergo change which is quite different from the past.

Clearly, disappearance of the demographic dividend will not only cut the labor force but also slow down the growth rate of capital investment. Cai explains that in the past China had low dependency ratio and labor burden, so the country could maintain a high saving rate and high investment, while the situation in future will be on the contrary.

The labor shortage will make the returns of capital investment decrease progressively, which will make capital investment drop.

Productivity progress, not only comes from the technological progress, but also from the improvement in efficiency of resource allocation including labor force. If we allocate labor force from lower productivity sectors to higher sectors, the productivity can be improved.

In the past, we transferred with large scale labor force from agriculture to the secondary industry and the tertiary industry, so the overall economic productivity has been improved. But, with the disappearing of the demographic dividend and the gradual drop in the number of surplus rural labor force, the possibility of productivity increase by this means will get less and less, according to Cai.

Cai said that in a word, China's economic growth will slow down due to the disappearance of the demographic dividend. The potential growth rate during the 11th Five-Year Plan period (2006-2010) stood at 10.5 percent, and it is forecasted that it will fall to 7.2 percent and 6.1 percent during the 12th Five-Year Plan period (2011-2015) and the 13th Five-Year Plan period (2016-2020) respectively.