Addressing Population Aging in China: Public Policy and Institutional Innovations

This proposal is for the completion of a book intended to be published as part of the Cambridge University Press Elements Series.

Among the many challenges facing the Chinese economy, population aging  is no doubt one of the most important. The old-age dependency ratio in China increased from 10 percent in 2000 to 13 percent in 2015 and is expected to increase to 44 percent by 2050. Both increasing life expectancy and declining fertility contributed to China’s rapid population aging. According to World Bank data, the average life expectancy at birth in China has steadily increased from 57.6 years in 1969 to 65.9 in 1978 to 76.4 in 2017; luckily, most of the life expectancy increases are healthy life expectancy. Family planning policies, including but not restricted to the one-child policy, have led to a rapid decline in total fertility, from 5.7 in 1969 to 2.7 in 1978, when the one-child policy started, to about 1.3 currently. 

Population ageing poses serious challenges for the fiscal conditions for China’s social insurance programs including its public pension system, its health and long-term care system, its labour market and the prospects of future economic growth (including the potential risk of “Japanification” of Chinese economy), and the various asset markets (including the housing market). Addressing these challenges calls for both public policy and institutional innovations. To the extent that China’s public pension system is inadequate, we discuss the roles of alternative financial products such as reverse mortgages designed specifically for the Chinese population, and the role of private insurance markets (including private annuity insurance and other retirement investment products), in providing retirement income for the elderly. We also provide analysis on policy innovations that can alleviate the impact of declining population on the labour market and the prospect of the Chinese economy growth, including increasing the retirement age, role of automation and artificial intelligence (AI), and investing in the education of the next generation of Chinese workers. Finally, we consider policies that address the looming mental health crisis of the Chinese elderly.

This Elements publication is based on a series of studies by the author (with various co-authors) on various aspects of population aging in China, including its pension system (Fang and Feng, 2021), insurance markets (Fang, 2016), housing market (Fang, Gu, Xiong and Zhou, 2015), fertility and fertility desires (Fang and Liu, 2024), mental health (Chen and Fang, 2021 and 2024; Fang, et al., 2023), retirement age (Deng, Fang, Hanewald and Wu, 2023; and Fang, Qiu and Zhang, 2024), and reverse mortgage designs (Hanewald, Bateman, Fang and Wu, 2020). It will also draw on an extensive literature published both in academic journals and policy discussions, and it will contain new results from the most recent publicly available data on births and deaths, life expectancy, fertility desires, and pension systems.