To what extent can urbanisation mitigate the negative impact of population ageing in China?

Our analysis reveals that ageing accounts for only about 1 percentage point of the GDP growth rate deceleration over the past decade.

Publishing date: 09 October 2023
Authors: Alicia García-Herrero Jianwei Xu

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China is experiencing population ageing caused by a rapidly declining fertility rate and increased life expectancy. This demographic transition poses economic challenges, yet the intensity of these challenges depends on a number of factors, with the move of people from rural to urban areas being of central importance.

To gain a clearer understanding of how urbanisation interacts with population ageing, we investigate changes in the Chinese labour force in both rural and urban areas. Our findings suggest a modest shrinking of the overall labour force up until 2035. However, until 2035, the labour force is projected to contract only in rural areas, while the urban labour force will continue to grow. As urban employment is more productive than rural employment, the combined effect of demographic change and urbanisation on growth will remain moderately positive (0.4 percent per year).

Beyond 2035, fertility rate decline will begin to affect the working-age population in both rural and urban areas, especially since the urbanisation process is expected to level off by then. In such circumstances, China’s shrinking population will shave off 1.4 percent from GDP growth annually. These results, however, do not take into account the impact of population aging on labour productivity. China’s fast move towards robotisation and artificial intelligence might help mitigate any negative impacts by increasing productivity, but there is no sign yet that this is the case.

_{We thank participants at a research seminar at Bruegel for their comments, which have helped us improve our paper. We thank Kelly Wang for excellent research assistance.}

This is an output of China Horizons, Bruegel's contribution in the project Dealing with a resurgent China (DWARC). This project has received funding from the European Union’s HORIZON Research and Innovation Actions under grant agreement No. 101061700.

About the authors

Alicia García-Herrero

Alicia García Herrero is a Senior fellow at Bruegel.

She is the Chief Economist for Asia Pacific at French investment bank Natixis, based in Hong Kong and is an independent Board Member of AGEAS insurance group. Alicia also serves as a non-resident Senior fellow at the East Asian Institute (EAI) of the National University Singapore (NUS). Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology (HKUST). Finally, Alicia is a Member of the Council of the Focused Ultrasound Foundation (FUF), a Member of the Board of the Center for Asia-Pacific Resilience and Innovation (CAPRI), a member of the Council of Advisors on Economic Affairs to the Spanish Government, a member of the Advisory Board of the Berlin-based Mercator Institute for China Studies (MERICS) and an advisor to the Hong Kong Monetary Authority’s research arm (HKIMR).

In previous years, Alicia held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. As regards her academic career, Alicia has served as visiting Professor at John Hopkins University (SAIS program), China Europe International Business School (CEIBS) and Carlos III University.

Alicia holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books (see her publications in ResearchGate, Google Scholar, SSRN or REPEC). Alicia is very active in international media (such as BBC, Bloomberg, CNBC and CNN) as well as social media (LinkedIn and Twitter). As a recognition of her thought leadership, Alicia was included in the TOP Voices in Economy and Finance by LinkedIn in 2017 and #6 Top Social Media leader by Refinitiv in 2020.
Jianwei Xu

Jianwei Xu is non-resident fellow at Bruegel. He is a senior economist at Natixis, Asia Pacific. He worked as a professor at Beijing Normal University. He was also a guest researcher at China Academy of Social Science and a youth member of the China Finance Forum 40.

His research mainly focuses on international economics and labor economics. He is particularly interested in topics related to the Chinese economy. He has published many papers in academic journals and also writes policy articles for the media.

He received his Ph.D. in economics from China Economic Research Center, Peking University in 2011. He was also a visiting student in Stern Business School, New York University, from 2009 to 2010.