The Greying of the Middle Kingdom: The Demographics and Economics of Retirement Policy in China

1. Introduction

China is about to undergo a stunning demographic transformation. Today, China is still a young society. In 2004, the elderly — here defined as adults aged 60 and over — make up just 11% of the population. By 2040, however, the UN projects that the share will rise to 28%, a larger elder share than it projects for the United States2 (see Fig. 1). In absolute numbers, the magnitude of China’s coming age wave is staggering. By 2040, assuming current demographic trends continue, there will be 397 million Chinese elders, which is more than the total current population of France, Germany, Italy, Japan, and the United Kingdom combined.
How China navigates its demographic transformation will go a long way toward determining whether it achieves its aspiration of becoming a prosperous and stable developed country. In the near term, while its population is still young and growing, China must rush to modernise its economy and raise living standards. In the long term, it must find ways to care for a much larger number of dependent elderly without overburdening taxpayers or overwhelming families.
Today’s developed countries became affluent societies before they became ageing societies. China may be the first major country to grow old before it grows rich. Despite the impressive growth of the past twenty-five years, China is still a low-income country. Although per capita income has risen sixfold since the beginning of the reform era, it is still just one-fifth the level in South Korea and one-ninth the level in the United States, even taking into account differences in purchasing power (see Fig. 2). As of 2000, according to the World Bank, 204 million Chinese still lived in abject poverty, defined as an income of less than $1 a day3. Even if today’s rapid pace of economic growth continues, China will have to pay for an age wave of developed-world proportions with a fraction of the developed world’s income and wealth.
China finds itself at a crossroads similar to that facing many other developing countries. Throughout East Asia and Latin America, falling fertility and rising longevity are ushering in the same demographic transformation. Although most nations still have relatively young populations, most are due to age dramatically over the next few decades. Although most remain relatively poor, most are struggling to modernise their economies, boost living standards, and integrate themselves into the global economy.
Perhaps nowhere, however, are the stakes as high as they are in China. If China fails to prepare for the ageing of its population, it could face a social and economic crisis of immense proportions later in the century. If it succeeds, it could become a dynamic member of the developed world, with a major role to play in the global economy and world affairs.

Figure 1: Within a generation, China will have an older population than the United States
Source: UN (2003).

Figure 2: Despite its recent rapid growth, China remains a low-income country
Source: World Bank (2003).

Richard Jackson and Neil Howe: Center for Strategic and International Studies, Washington.
1 This essay is excerpted from a report of the same name jointly published by the Center for Strategic and International Studies and the Prudential Foundation in April 2004. A complete copy of the original report is available in PDF format at
2 The UN publishes several demographic scenarios. Unless otherwise noted, all population projections cited in this article refer to the UN’s 2002 “constant fertility” scenario, published in World Population Prospects: The 2002 Revision, 2 volumes (UN, Population Division; 2003).
3 World Development Indicators (World Bank; 2003).

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