Workforce & Economics

China’s aging challenge

May 30, 2017
By Xiao Caiwei

By the middle of the 21st century, the elderly population in China will be more than one-third of the nation. While demographic analysis suggests that this high level will subsequently reduce and stabilize, the change to China’s population structure will not reverse: China will be a much older country than it has ever been in its 5,000-year history.

The scale and speed of the transformation will also be immense. China is already the only country in the history of the world with an elderly population greater than 100 million. (China’s aged population alone would be the 14th largest country in the world.) When that population peaks around 2050, the number will be nearly half a billion—greater than the elderly populations of all the G-8 nations combined. Moreover, China’s elderly population continues to grow at nearly twice the rates in the developed and developing worlds.

The enormity of this trend holds many implications for China. I’d like to speak now of just one, perhaps not the most important, but one of great interest not just to observers and students of China but to anyone concerned with the state of aging and retirement around the world.

Demographic trends in China

In China, there is no one set age to retire for all people but the ages vary by gender and by one’s position within the economy. Still, overall, China allows extremely low retirement ages for its workers. For instance, women in the industrial sector may retire as young as 50 years old; for men it is age 60. Overall, across the entire system, the average retiring age in China is 53.3—a full dozen years earlier than the average in the developed world.

Official retirement age

Official retirement age

Source: Aegon Center for Longevity and Retirement, The New Flexible Retirement, 2015.

And, just like in nearly all developed countries, in China the ratio of working-age people to retirees continues to tip toward the elderly. Currently, in China’s urban centers, that ratio is three workers for every one pensioner and the government pension plan runs a surplus. It is predicted that within 20 years the surplus will turn to a deficit, requiring either higher taxes or reduced expenditures or both.

A rise in life expectancy and retirement age

Also like most of the world’s developed countries, China has experienced a rapid rise in life expectancy—now nearly 75 years across the country. People who reach age 60 can expect to live even longer—another 19 years on average for men and another 21 years for women. And these are just the national averages: people in the cities are living even longer still. This means that the average Chinese pensioner is drawing funds from the state for 25 years—a decade longer than her counterpart in the developed world.

Clearly, China’s current retirement age paradigm is not sustainable and must be raised, but in a way that respects all people’s basic rights to productive work and to retire in security and dignity. Thankfully, greater life expectancy correlates with better health levels into old age—meaning that people are able to work longer because their mental and (to a lesser extent) physical abilities continue to be relatively strong into their later years.

Gradually extending a worker’s career is thus not merely necessary to sustain China’s pension system but will also help the country better utilize the talents of its people. Especially in the 21st century, human capital is the most important source of a country’s health, well-being and prosperity. No country can long afford to simply set so much of that capital aside. But that’s effectively what a very low retirement age does. And it’s not simply a matter of being good for the country or economy at large. Working longer correlates with greater health and well-being for individual people as well.

Experts suggest that several policy responses make sense for China. The first is to equalize the ages to retire for men and women. Some in the government refer to this principle as “Ladies First”: since the retirement age for women is currently lower than for men, the government’s first step should be to gradually raise the women’s until it is equal to the men’s age. From that point, the government’s plan is to continue gradually raising the retirement age—now the same for both men and women—by two and three year increments until it reaches age 65, no later than 2050.

Modernizing retirement

Another principle is to explore the flexible retirement policies. That is, rather than set a firm retirement age for various sectors of the economy, the government could find ways to encourage older workers to work longer and to delay the age at which they begin to receive pensions. Laborers in different regions and industries will be allowed more latitude to choose when they retire, how they retire, and when they take their pensions.

This will be a difficult, but necessary, transition. The Chinese people generally know that the country’s retirement age is too low. And they understand very well that China’s economy and societal structure have been completely transformed in recent decades. As China has modernized its economy, it will also be necessary to modernize its retirement system. That is one of the government’s more urgent tasks, and one that China is confident it can achieve fairly and with minimal disruption.

Xiao Caiwei
Vice President, China National Committee on Ageing
Vice President of the China National Committee on Ageing and Director of the Hualing International Training and Exchange Center on Ageing.