Research Institute of Economy, Trade and Industry (RIETI) BBL Seminar Handout September 12, 2011 China s Demographic Change and Implications for Rest of the World" CAI Fang http://www.rieti.go.jp/jp/index.html
China's Demographic Change and Implications for Rest of the World CAI Fang Institute of Population and Labor Economics Chinese Academy of Social Sciences
Prologue Mainly talk about population trend & implications to China. For rest of the world, you may think of how to deal with the following trends 1. Labor-intensive industry moves to inland 2. labor cost hike reduces trade surplus 3. Catching up in technology & skills 4. Changing from producer to consumer
Demographic Transition in China
China Demographic Transition
Comparison of Total Fertility Rates 3.0 2.5 2.6 2.5 2.0 1.5 1.6 1.4 1.4 1.0 0.5 0.0 World Developing Developed China Japan
1600 1400 1200 1000 800 600 400 200 0 New Prediction on Total Population 2035:1437 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2 030 2 035 2 040 2045 2050
Prediction of Working Age Population 20 15 10 5 0-5 -10-15 -20 Urban Rural 2022 Increase of WAP (mil.) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
65 60 55 50 45 40 35 Vanishing Demographic Dividend Dependence ratio (%) 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 2025 2029 2033 2037 2041 2045 2049 Predic1 Predict2 Predict3
Labor Shortage & Wage Increase
Rapid Growth of Labor Demand 500 450 400 350 300 250 200 150 100 50 0 Urban migrant workers Urban resident workers Urban employment (mil.) 2002 2003 2004 2005 2006 2007 2008 2009 2010
Demand Grows Faster than Supply Employment growth rates (%) 9 8 7 6 5 4 3 2 1 0 Secondary Tertiary 7.6 6.8 6.1 5.2 4.7 4.2 3.7 8% 9% 10% 11% Annual growth scenarios 8.3
Widespread Shortage of Migrant Workers
Wages Increases in All Sectors 40 1800 35 30 25 20 15 10 5 1600 1400 1200 1000 800 600 400 200 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Grain Pig farm Coton Manuf. Construction Year Migrants Agricultural wages (yuan/day) Non-agricultural wages (yuan/month)
Supportive Policies for Wage Increase Efforts on income distribution Widening social security coverage Increasing minimum wages (13% annual growth for 12th Five-year Plan period) Labor market institutions (collective bargaining; workers biased judge in labor disputes)
Profit Drop Caused by 20% Increase in Labor Cost (SWS, 2010) 70 60 50 40 30 20 10 0 environment protection cotton spinning coal mining road transport garm ent wool spinning passenger van consummer chemicals integrated circuit shipbuilding machine tool construction machinery heavy machinery meat product chemical agents port component airport railway transport water transport road and bridge Margin reduction effects by labor cost (%)
Impact on Trade Surplus According to economist at Deutsche Bank, increase in labor costs in laborintensive manufacture will generate similar effect as RMB appreciation. It is estimated that demographic factor will contribute half of the trade surplus reduction. In 2016, there will be no more surplus but deficit
Whither Labor-intensive Industries?
100 90 80 70 60 50 40 30 Neighboring Countries as Destinations China Vietnam India 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Most Likely, Regional Flying Geese
Wages Differentials Will Exist 1300 JX QH 1200 GS SXX YN 1100 HLJ NMG HEN XJ 1000 SX GZ AH 900 GX SC HN 800 HB SD HUB FJ 700 BJ NX 600 500 400 East Central West 2003 2005 2006 2008 2009 LN ZJ HAN CQ JL TJ JS SH GD 0 8 16 24 32 40
Age Structure of Agricultural Labor 40 over 50% 16-20 9% 21-25 1% 26-30 9% 31-40 31%
It Takes Time for Newcomers to Pick Up India 30% Iran 2% Turkey 2% Nigeria 3% Mexico 3% Pakistan 4% Indonesia 6% Philippines 2% Vietnam 2% Egypt 2% China 40% Bangladesh 4%
Industrial Transfer Has Happened 100% 95% 90% 85% 80% 75% 70% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Distribution of Labor-intensive Manufacturing East Central West
Upgrading and Catching up
100% 80% 60% 40% 20% 0% TFP: Sustainable Source of Growth 2008 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009 K L H DR TFP
Gap in Innovation: R&D Expenditure R&D as percent of GDP 3 2.5 2 1.5 1 0.5 0 China High income Middle income Low income World average
Gap in Innovation: R&D Personnel 45 40 35 30 25 20 15 10 5 0 China R&D staff per 1000 people High income Middle income Low income World average
Gap in Innovation: # of Patents Patents per mil. people 900 800 700 600 500 400 300 200 100 0 China High income Middle income Low income World average
Huge Gap in Human Capital 16 14 Years of schooling 12 10 8 6 4 2 China USA Japan 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 Age
Advantage of Backwardness Two definitions for globalization: (1) global expansion of trade, (2) globe-wide flows of knowledge/ideas China ends the former and begins to utilize the latter Implication for advanced countries is how technology can be bound with FDI
Migrants: Next Giant Consumer
Size and Composition of Migrants Migrant workers left home township for 6 months increase to 160 million in first half of 2011 and 2/3 are new generation (born after 1980s), who are better educated, earn more and consume more
50 40 30 20 10 Incomplete Urbanization Population share (%) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Non-agr share Urban share
Migrants Insecure Employment 285 280 Days-m Days-f Numbers 180 160 275 140 270 120 Days 265 100 260 255 250 245 240 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Million 80 60 40 20 0
Low Coverage of Social Security 60 50 40 57.0 52.7 47.9 40.9 34.9 30 24.1 20 10 0 13.1 9.8 3.7 2.0 Unemployment Basic medical care Work injury Maternity Basic pension Urban workers Migrant workers Coverage rates (%)
Institutional Potential of Consumption Yearly consumption (PPP$) 4500 4000 3500 3000 2500 2070.4 2000 1500 950.6 1000 500 0 The poor Off poverty Farmers Migrants Urbanites The rich
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