China’s pension crisis is here

On September 13, the Chinese government approved plans to raise the mandatory retirement age from 60 to 63 for men, 55 to 58 for white-collar women, and from 50 to 55 for blue-collar women.These changes, which will be phased in over the next 15 years, aim to mitigate the effects of China’s rapidly ageing population and shrinking pension budget. But after two decades of inaction, this long-overdue reform falls far short of what the country needs, merely kicking a political time bomb down the road for future generations to defuse.China’s retirement ages, among the world’s lowest, were set in 1955, when the country’s median age was 21 and just 7% of its population was older than 60, and they remained in place even after China introduced its one-child policy in 1980. The government’s promise to take care of the elderly lulled people into complacency.For a quarter-century, alarm about China’s looming ageing crisis has been sounded. Yet despite China’s profound demographic shifts, the country’s leaders have been reluctant to raise the retirement age.Chinese policymakers continue to be more concerned about overpopulation than about ageing. In 2012, government demographers warned that allowing all couples to have two children could push the fertility rate above 4.4 births per woman.When China finally implemented a universal two-child policy in 2016, official projections suggested that the fertility rate would peak at 2.09 in 2018, then decline to 1.75 by 2023 and 1.72 by 2050. Despite these trends, China introduced a three-child policy in 2021, driven by fears that abolishing population controls altogether could trigger a baby boom reminiscent of the 1950s.Moreover, Chinese leaders worried that raising the retirement age would fuel unemployment. More recently, the Communist Party of China wanted to minimise the risk of unrest ahead of its 20th National Congress in 2022, and pension reforms are often politically charged. For example, the United Kingdom’s 2011 decision to raise the retirement age for women from 60 to 65 triggered strikes by nearly 2mn public-sector workers.But even according to the government’s exaggerated figures, China’s fertility rate was just 1.5 births per woman in 2018, far below official projections. In 2023, it dropped to 1.0, with some provinces reporting rates as low as 0.6, in stark contrast to the official forecast of 1.75.Meanwhile, China’s life expectancy rose from 47 in 1955 to 79 in 2022 (compared to 77 in the US).The number of Chinese citizens aged 60 or older has grown from 72mn in 1980 to 282mn today, accounting for 21% of the total population. This number is expected to reach 358mn by 2030 and 475mn – or 47% of the total population – by 2050.Consequently, China’s pension spending surged from just 1.5% of household disposable income in 1990 to 12% in 2022. Today, nearly one-third of China’s provinces are grappling with pension deficits. In Heilongjiang, which has the country’s lowest fertility rate and oldest population, pension expenditures account for 29% of household disposable income, forcing local authorities to rely on transfers from the central government to cover up to 43% of their pension costs. Given that the national pension fund is expected to run out of money by 2035, the fiscal outlook appears increasingly grim.China’s pension system is also deeply inequitable. In 2022, 21mn of the country’s 301mn retirees were government employees, 115mn were enterprise workers, and 165mn were primarily rural elderly people, each of whom received an average monthly pension of $907 (CN¥6,100), $468, and $30, respectively. With their only child unable to support them, many rural elderly will depend on government assistance.China’s failure to confront its demographic crisis stands in stark contrast to other countries that have taken meaningful steps to address similar challenges. Despite widespread protests, the UK raised the state-pension age to 66 and plans to increase it to 68 by 2044, with some experts predicting it could eventually rise to 71. In the US, the retirement age is already set at 67 for those born after 1960.Fortunately, alarming demographic trends have finally prompted Chinese leaders to shift their focus from overpopulation to the aging crisis. But they still seem to downplay its severity, as official population figures – and even UN projections – remain grossly exaggerated.Estimates suggest that China will struggle to stabilise its fertility rate at 0.8. As the workforce ages and shrinks, economic growth will slow and reduce government revenues, while the growing elderly population will drive up pension costs.With too few workers to support the system, no amount of political manoeuvring or creative accounting can avert the impending pension crisis.In 1980, China had 11 workers aged 20-64 for each person aged 65 or older. That ratio has since dropped to 4.3 and is projected to fall to 2.0 by 2040 and 1.5 by 2050. By comparison, the US ratio declined from 5.2 in 1980 to 3.2 today and is expected to reach 2.6 by 2040 and 2.4 by 2050.In the UK, the dependency ratio has fallen from 3.7 to 2.9 since 1980 and is projected to decrease to 2.4 in 2040 and 2.2 in 2050. Given its demographic challenges, China will need to keep raising its retirement age, potentially triggering civil unrest and political instability.Women disproportionately bear the costs of low fertility rates and ageing populations because they outlive men yet face more health problems.With pensions too small to cover their basic needs, many elderly women are forced to keep working well past retirement age. This is evident in Japan, where the employment rate for women aged 60-64, 65-69, and 70-74 has increased from 38%, 23%, and 14% in 2003 to 64%, 43%, and 26% in 2023, respectively. And it is especially true in China, where the disastrous one-child policy not only deprived women of the right to have more children but also condemned many to poverty and precarity in old age. – Project Syndicate

• Yi Fuxian, a senior scientist at the University of Wisconsin-Madison, spear-headed the movement against China’s one-child policy and is the author of Big Country with an Empty Nest (China Development Press, 2013), which went from being banned in China to ranking first in China Publishing Today’s 100 Best Books of 2013 in China.