Once a demographic powerhouse, a long-running decline in China’s working-age population will put economic growth and government finances under pressure for years to come, says Moody’s Investors Service.
In a new report, the rating agency said China’s workforce is expected to continue shrinking for the rest of the century, which will lead to growing economic disparity between regions as competition for migrants intensifies and government spending rises.
“The steady decline in China’s working-age population will present challenges for economic growth in the absence of a pickup in labour productivity, which has slowed since 2010,” says Jack Yuan, vice-president and senior analyst at Moody’s, in a release.
“Meanwhile, the country’s limited social-welfare system will come under strain as the burden of supporting retirees grows,” he added, noting that these pressures will primarily fall on regional governments.
Moody’s said the pressure on government finances is closely tied to the internal competition for workers, as migrants move from China’s interior provinces and its northern and northeastern regions to its “economically competitive cities” in the Yangzi River and Pearl River delta regions.
“This trend will amplify differences in birthrates between regions, which together with the rising pressure on [regional government] budgets, will intensify the divergence in fiscal and debt outcomes at the regional and local levels,” the report said.
“Declining revenue associated with falling populations will pose a greater credit challenge than rising spending needs where populations are still growing,” Moody’s said.
Regions with falling populations “will likely have weaker economies, stagnant or declining fiscal revenue and greater hurdles in servicing growing pension liabilities and other fixed costs as dependency ratios climb,” the report said.
At the same time, regions of the country with rising populations will enjoy stronger economic growth and higher tax revenue to help cushion rising spending demands.
“That said, all regions will face financial pressure from supporting a population that is aging overall,” it said.