Despite the cancellation years ago of China’s harsh, Mao-era restriction on families to a single child, China’s population is steadily shrinking — a momentous shift that will soon leave India as the world’s most populous nation. The change will have outsize effects not just on the domestic Chinese economy, but on the world at large as well. Here’s why global economists and others are alarmed by the developments.
The shrinking workforce could hobble the global economy. For years, China’s massive working-age population powered the global economic engine, supplying the factory workers whose cheap labour produced goods that were exported around the world. In the long run, a shortage of factory workers in China — driven by a better-educated workforce and a shrinking population of young people — could raise costs for consumers outside China, potentially exacerbating inflation in countries such as the United States that rely heavily on imported Chinese products. Facing rising labour costs in China, many companies have already begun shifting their manufacturing operations to lower-paying countries like Vietnam and Mexico.
A shrinking population could also mean a decline in spending by Chinese consumers, threatening global brands dependent on sales of products to China, from Apple smartphones to Nike sneakers. The data is bad news for China’s crucial housing market. China has also been unwilling to loosen immigration rules to boost the population, and has historically issued relatively few green cards to replenish its shrinking workforce. To address the labor shortage, China has been outsourcing low-skilled production to other countries in Asia, and adding more automation to its factories, hoping to rely more on artificial intelligence and technology sectors for future growth.