Contractions in Chinese Fertility and Savings: Long Run Domestic and Global Implications
46 Pages Posted: 16 Mar 2016
Date Written: March 14, 2016
Following three decades of rapid but unbalanced economic growth, China’s reform and policy agenda are set to rebalance the economy toward consumption while maintaining a rate of GDP growth near seven per cent. Among the headwinds it faces is a demographic contraction that brings slower, and possibly negative, labour force growth and relatively rapid ageing. While the lower saving rates that result from consumption-oriented policies and rising aged dependency may contribute to a rebalancing of the economy, in the long run they will reduce both GDP growth and per capita income. Moreover, while an effective transition from the one-child policy to a two-child policy would help sustain growth and eventually mitigate the aged dependency problem, it would set real per capita income on a still lower path. These conundrums are examined using a global economic and demographic model, which embodies the main channels through which fertility and saving rates impact on economic performance. The results quantify the associated trade-offs and show that continuing demographic and saving contractions in China would alter the trajectory of the global economy as well.
Keywords: China, demography, imbalances, spill-overs, global effects
JEL Classification: F42, F43, F47
Suggested Citation: Suggested Citation