Why China’s shrinking population may be a blessing, not a curse
There is little in common between Daron Acemoglu and Xi Jinping. As a strong advocate of the Western model of liberal democracy, Acemoglu, co-recipient of the 2024 Nobel Prize in economics, may be considered the ideological opposite of the Chinese president. But on a crucial point about China’s future, the two may, strangely, be on the same page: an across-the-board introduction of cutting-edge…
While China's rapidly aging population has sparked alarm among the public, experts suggest that it may be a silver lining rather than a cause for despair. Renowned economist Daron Acemoglu, co-winner of the 2024 Nobel Prize in economics, stands by this view alongside China's leaders. He believes that widespread adoption of advanced technology could help sustain economic growth and offset the negative consequences of a shrinking labor force.
Recent official figures released in January revealed that China's population declined by 3.39 million in 2023, marking the fourth consecutive year of decline and the steepest yet. Births fell by 17 percent to 7.92 million, the lowest since records began in 1949. Moreover, roughly 323 million Chinese, nearly a quarter of the population, are now aged 60 or above.
At first glance, these numbers paint a grim picture of an impending economic downturn, with a dwindling workforce, an unsustainable pension system, and a booming senior citizen demographic. However, some economists argue that the story may be more nuanced and that technology could be the key to turning a potential curse into a blessing.
In a groundbreaking study published in July by the National Bureau of Economic Research, four economists – Daron Acemoglu, David Autor, Keelan Beirne, and Andrew Scott – analyzed decades of demographic change across more than 100 countries and 722 American local labor markets. They found that countries with declining birth rates did not grow more slowly. Instead, they experienced faster per capita economic growth, and total output did not decline.
The authors attribute this counterintuitive outcome to technology's "endogenous, labor-saving response" to the scarcity of younger workers. A country with a birth rate one percentage point lower in 1950 saw income per working-age adult roughly 25 percent higher 50 years later, or about half a percentage point (0.46 percent) of additional growth every year, compounding across two generations.
This phenomenon is evident in the United States, where regions with lower birth rates have experienced higher wage growth, with no negative impact on aggregate GDP or earnings. Similarly, China's rapid adoption of robotics, artificial intelligence, and advanced manufacturing technologies aligns with this pattern. In 2024, Chinese factories installed 295,000 industrial robots, accounting for 54 percent of the global total.
This surge in automation has brought the operational stock past two million units, the largest in the world.
The Chinese government's 15th five-year plan centers on these technological advancements, with the economy growing by 5 percent last year and recording a record trade surplus. While genuine challenges remain, such as the impending exhaustion of the state pension fund for urban workers and growing labor shortages among younger generations, the economists argue that these issues can be addressed through strategic investments in technology and innovation.
In essence, the looming demographic crisis may not be the economic catastrophe it seems. Instead, it could serve as a catalyst for China to embrace and harness the power of technology, driving productivity gains and ensuring continued economic growth in the face of an aging population.
Written by urgent.news from South China Morning Post's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
