China's demographic transition is taking place at a faster pace than its economic transition

Since China adopted its reform and opening-up policy in 1978, the country has witnessed more than four decades of rapid urbanization. As a result, nearly 64 percent of the country's population lives in the cities, according to 2020 figures. However, at the same time, an aging population is increasingly affecting the migration of rural people to urban areas and the provision of urban public services.

According to the country's Seventh National Census conducted in 2020, citizens aged 65 years or above numbered 191 million, representing 13.5 percent of the country's total population, up 4.63 percentage points from the previous census figures of 2010. In addition, its natural population growth rate has dropped from 15.68 per thousand in 1982 to 1.45 per thousand in 2020. This indicates the irreversible trend of an aging society.

China is now at a critical stage of urban-rural integration. In 2020, the country's urbanization rate of permanent residents－which cover those who have lived in urban areas for at least six months－was 63.89 percent, while the urbanization rate of the registered population－which counts people who have an urban hukou, or household registration status－was just 45.4 percent.

The gap between the two numbers shows the difficulties the large migrant population faces in integrating in the cities. While the massive influx of people from the countryside to the urban areas has provided a sufficient labor force for large cities such as Beijing and Shanghai, due to institutional barriers these migrant residents have long been excluded from urban basic public services, such as pensions. To bridge the gap, a unified national system of public services should be established, which requires not only enhanced cross-regional coordination in public fiscal expenditure, but also unification of systems and standards for urban and rural public services.

More importantly, megacities such as Beijing and Shanghai, which are home to large numbers of migrant workers, face a bigger challenge from the aging population. Those aged 65 or above account for 13.3 percent of the total population in Beijing, 4.6 percentage points higher than the figure in 2010, and the proportion is 16.3 percent in Shanghai, up 6.2 percentage points from 2010. At the same time, the migrant population is growing older. The average age of migrant families rose from 29.07 in 2011 to 44.06 in 2018, and the aging trend is especially apparent in cities. As a result, it is becoming increasingly harder to add new labor by turning migrant populations into permanent residents.

Generally speaking, the more urbanized an area is, the more economically developed it is and the higher incomes its residents have. Urban areas tend to boast a high labor force participation rate and a greater length of education and training of residents. However, the higher child-bearing and childrearing costs in cities often deter couples from having more than one child, leading to lower birthrates than in rural areas. Meanwhile, as young rural people relocate to the cities, the elderly are left behind in villages. According to the Seventh National Census, people aged 65 years or above in rural areas accounted for 47.39 percent of the total population in that age group, a disproportionately high figure.

Compared with other countries, China's demographic transition is taking place at a faster pace than its economic transition. World Bank data show that the share of senior citizens in a country's total population is positively correlated with its per capita GDP. But in China there is a weak correlation between the proportion of old people and the per capita GDP, which means that China is getting older before getting richer. The aging problem is particularly pronounced in the rural areas, which leads to shrinking new labor force and sluggish consumption demand, hampering the growth of a unified domestic market. In addition, the rapidly aging population creates a heavy fiscal burden for the country.

To tackle the problem, for China, the following aspects should be considered:

It should strive for more equal access to basic public services and help more rural people become urbanites. Efforts should be made to explore a path to transition from the current household registration system to one based on permanent residency, and gradually extend basic public services to more migrant populations living in the cities. It is necessary to determine the proportion of payment by central government transfer and local spending on public services. All these will help promote high-quality urbanization and realize common prosperity.

The pension system should undergo further reform. To address the needs of the aging population, the State Council, China's Cabinet, has recently issued a guideline on building a personal pension mechanism to complement its current pension system. China's basic oldage pension is composed of two parts: the basic pension insurance for urban employees and that for urban and rural residents. The personal pension system is expected to bring higher returns to personal pension accounts through investment in capital markets. By setting a contribution cap－12,000 yuan ($1,813) a year for one account－it will ensure the gap between the rich and the poor remains within a reasonable range. The enlarged investment of pension money comes as good news for the capital markets. But the pension funds must be used for its original purpose－to serve retirees－and market risks should be avoided.

Delaying retirement to fully tap the human resource potential of high-quality senior people is another option. Currently China has a large pool of young labor. When they grow old, they will still be able to serve society. The country should establish a flexible retirement system which allows people to "retire but still work" in order to make the most of its older human resources.

The author is an associate researcher of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences.

Contact the editor at editor@chinawatch.cn