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China's silver tsunami set to take toll on economic growth

Number of 18- to 30-year-olds shrank 30 million in three years

Residents dance for daily exercise at a city square in China. The working-age population is aging fast, putting downward pressure on the economy.   © Reuters

BEIJING -- China's slowing economic growth owes largely to the trade war with the U.S., but its aging population has also dragged down personal spending, a trend that will likely force the world's second-largest economy to confront head-on a problem bedeviling many developed nations.

China's real gross domestic product grew 6.1% in 2019, the weakest pace in 29 years, while the birthrate hit a six-decade low, highlighting the challenges facing Beijing leaders. And the effect of the aging society will become even more evident from about 2022 to 2023, when Chinese baby boomers begin to retire, further exerting pressure on the economy.

"Our economy is still growing at the fastest pace in the world," Ning Jizhe, commissioner of the National Bureau of Statistics of China, told a news conference Friday, adding that per capita GDP surpassed the $10,000 milestone.

Yet China's economic growth -- which had been almost unnaturally stable since President Xi Jinping took office in 2012 -- slowed a sizable 0.5 percentage point from 2018. The most notable point is that, while the secondary sector -- which includes tariff-hit manufacturing -- registered 5.7% growth for a slowdown of a mere 0.1 point, the expansion in the tertiary, or services, sector slowed 0.7 point to 6.9%.

Demand is weakening inside China. Consumption contributed just 3.5 points to economic growth, down 1.5 points from 2018 and the worst in 30 years. Ironically, the driver of the expansion was external demand with a contribution of 0.7 point -- improving from minus 0.6 point the year earlier. This means that, without the "undesirable" increase in trade surplus -- as a result of decreasing imports -- GDP growth would have been slower than 5%.

To see how the vast market of 1.4 billion people is losing vigor, take a look at the mobile phone industry. Shipments fell for a third year in 2019 to 389 million handsets, down 170 million from 2016, government data shows.

Over the same three-year period, the number of 18- to 30-year-olds shrank a whopping 30 million. Today, the population of people born in 1999 stands at just 14 million -- exactly half of the 28 million born in 1990, a byproduct of the one-child policy that was strictly enforced in the 1990s. The soft sales of smartphones, apparel and autos are blamed in part on this smaller count of 20-somethings, a generation that usually enjoys a big disposable income.

China had 14.65 million babies born in 2019, a drop of 580,000 on the year and a third year of declines, the government said Friday. The fertility rate -- the number of children a women gives birth to -- stood at about 1.2 on average between 2012 and 2016, while the number of women of childbearing age is expected to decline about 40% over the decade through 2025 -- meaning China will continue to have fewer births going forward.

In 2010, three out of four people in China were of the working age, between 15 and 64, and this high ratio helped drive the economy even faster. But after hitting the 1 billion mark in 2013, the working-age population has been shrinking.

The economy is also weighed down by a change in the migrant worker population. These rural laborers who had moved to urban areas to work at factories and construction sites fueled a surge in demand for apartments in cities. But now that older workers are going back to the countryside, the migrant labor population fell for five years in a row, declining to 236 million at the end of 2019.

The population change will exert clear downward pressure on the economy starting in around 2023, said Li Xunlei, chief economist at Zhongtai Securities. That is when the roughly 27 million people born in 1963 reach the mandatory retirement age of 60. They are part of the baby boomers born between 1962 and 1976, who total at least 20 million for each birth year. With a stricter definition of 15- to 59-year-olds, China's working-age population is poised to shrink roughly 10 million people, or about 1%, a year starting in 2022.

The problem is that the working population is decreasing before the entire country becomes affluent. Even when China's working population hit 1 billion in 2013, its GDP per capita was less than one-seventh of the figure for the U.S. In comparison, when Japan had its peak workforce back in 1995, its per capita GDP was 50% more than the U.S.'s, lifted in part by a strong yen.

China faces surging fiscal expenditures, such as medical costs and pension obligations, with the Chinese Academy of Social Sciences warning last year that public pension funds will run out by 2035. With military and security spending also seen rising, Xi's goal of a "great revival of the Chinese people" looks increasingly uncertain.

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