China's One-Child Policy Brings the Challenge of an Aging Population

April 25: An elderly Chinese man talks to a child on a street of Daxing district in Beijing, China. China's population is aging rapidly and half the people now live in cities, the government said Thursday, April 28, 2011. The data from a national census carried out late last year will fuel debate about whether China should continue with its "one-child" policy, experts said. (AP2011)

China has a problem, a rapidly aging population.

It’s a problem that some Asian countries, including Japan, have already faced, and one that is causing persistent struggles as economies continue to stagnate.

While it doesn’t seem a problem on the scale of the economic difficulties being faced in the United States right now, it could well have much greater consequences for the world in the longer term.

China has created the problem in part, themselves, through its strict one-child policy for families. Its argument has always been since it introduced the draconian policy in 1978 that a large population hinders economic growth. And it's indicated this week it won’t change the policy.

In fact, China’s birth policy is strict compared to any other country, but it hasn’t stopped a population increase.

Over the past ten years China's population has increase by nearly 74 million people, adding to its citizenry the population equivalent of California. That’s because while urban couples are limited to one child, rural families can still have two and minorities don’t have the same restrictions.

Despite the increase in population, the latest census numbers reveal a population time bomb is ticking.

The latest national census in China shows the number of elderly people in the country has jumped to more than 13.3 percent in a population of 1.34 billion, an increase of nearly 3 percentage points from the last census in 2000.

And the number of young people has plunged. They account now for 16.6 percent of the Chinese population, down 6.3 percentage points from a decade ago. Young people ages 14 and below accounted for 16.6 percent, down 6.3 percentage points from a decade ago.

It will mean, of course, there will be fewer young people in China to pay for and care for its growing elderly population.

The other significant number from this census shows the immense change in China over the past few decades from a largely agrarian society to an industrialized one. It shows that nearly half its population now lives in cities, up from 36 percent a decade ago.

"China is, for the first time, crossing a historical landmark from a country that's dominated by people engaging in agriculture, living in the countryside, to an urbanized society," said Wang Feng, a demographer who is director of the Brookings-Tsinghua Center for Public Policy in Beijing.

China’s economic reforms have created one of the greatest developments in the history of humanity. It has pulled tens, if not hundreds of millions of people out of poverty and has sparked a massive movement of people from villages into cities.

And that is where the problem lies because, some argue, the numbers just don’t add up if it wishes to continue its economic progress.

It basically comes down to this: There will shortly not be enough young people joining the workforce to fill all those factories pumping out goods for the world.

The impact is being felt already, with workers pushing for increased wages as they realize they are more in demand. The situation is being exacerbated by China's rising inflation, currently at around 5 percent.

The main driver of this is soaring food costs, which is a problem for much of the world.

According to Hays, a recruitment agency based in Hong Kong, China-based companies have been forced to accept larger wage increases than employers in Singapore, Hong Kong and Japan.

According to its survey, nearly half the employers in mainland China said they raised salaries by between 6 percent and 10 percent last year, and nearly 9 in 10 say they expected to raise salaries by six 6 percent or more this year.

Already some companies are uprooting from the booming coastal towns and cities to try to get a cheaper workforce in other parts of the country that are not as developed. But some argue that is only putting off the problem, and wage inflation will eventually spread to there because of the demographics of China.

Its neighbor, Vietnam, is already benefiting from multinationals investing there as a balance to having all their eggs in one basket in China, so to speak.

Intel has, for instance, built a $1 billion state-of-the-art assembly plant there, in part because of its cheap and well-educated young workforce. And there are reports that companies are now looking to move from China to countries such as Cambodia and Burma to benefit from cheaper labor.

A brief search on the Internet immediately shows the problem. Plasticsnews.com reports an American-owned medical plastics firm, Guangzhou Fortunique Ltd, is looking to move some of its labor-intensive operations elsewhere in Asia.

After seeing a 20 percent increase in wages in the past year, Charles Hubbs, the company's director, was quoted as saying, “If I don’t move this out, in three years I won’t be cost-effective enough to keep the business.”

The company plans to keep its plastics operations in Guangzhou, near Hong Kong, but is likely to move its sewing and assembly operations to a country like Cambodia or Burma.

Not every company has the ability to move in search of cheaper labor. And this is where the population crisis in China will likely impact the U.S. and its consumers. As wages spiral upwards in China, those cheap goods people in the West have loved and bought for the last few decades will likely become a lot more expensive.

It's difficult to see any other country having the population or the wherewithal to make the products needed at the same price or in the same quantities to meet demand. And so China will likely remain the engine of the world economy, but its goods will also likely cost the American public more.