Five ways China is tackling its economic, demographic woes

    China is implementing aggressive strategies to combat an aging population, a declining birthrate, real estate volatility, and deflationary pressures.
    China’s real estate crisis has sent shockwaves through the economy, adding to the government’s list of challenges in 2024. Image: Shutterstock
      Published   in Finance

    An aging population, declining birth rate, trade volatility, and deflationary pressures are combining to create an economic crisis in China that threatens to derail the nation’s long-term growth and social stability.

    An aging population results in a shrinking workforce, increased pressure on healthcare and pension systems, and a change in consumption patterns, all of which can slow growth. Meanwhile, a declining birth rate threatens to further reduce the pool of future workers and consumers.

    Coupled with economic pressures such as deflation, a cooling property market, and global trade volatility, these demographic trends form a complex crisis that requires urgent solutions. Here, Jing Daily explores five key areas in which China is taking action in 2024.

    Revamping childbirth policies and elderly care#

    Despite the abolishment of the one-child policy nearly a decade ago, the lingering effects of past population control measures, coupled with the modern challenges of career aspirations and gender discrimination, necessitate a robust response to encourage population growth.

    Recognizing the urgent need to reverse the birth rate decline, China is intensifying efforts to alleviate the financial and societal burdens of childbirth by refining parental leave policies, improving the sharing of labor costs among employers, and increasing the availability of childcare services.

    China is implementing a proactive national strategy to support the “silver economy.” Image: China Daily
    China is implementing a proactive national strategy to support the “silver economy.” Image: China Daily

    Parallel to these efforts, China is tackling the challenges posed by its rapidly aging population. The nation is implementing a proactive national strategy, raising minimum basic old-age benefits, and continuing to increase basic pensions for retirees. By 2033, approximately 300 million individuals currently aged between 50 and 60 are expected to exit the workforce, highlighting the urgency of these reforms, as well as the importance of the “silver economy.”

    Stabilizing the economy #

    Managing inflation while stabilizing the economy has become a critical balancing act, especially in the face of recent demographic and financial challenges. February 2024 saw a pivotal shift in China’s consumer price index (CPI), which rose for the first time in six months, marking a momentary reprieve in the nation’s struggle against weak consumer sentiment and deflationary pressures.

    A recent resurgence in consumer prices, buoyed by key food items such as pork and fresh vegetables, along with increased travel activity during the Lunar New Year, is attributable to seasonal spending behaviors.

    Addressing the real estate slump#

    The ongoing decline in China’s property market, with new home prices falling for eight consecutive months as of February 2024, poses significant risks to the nation’s economic stability.

    The roots of the slump can be traced back to home prices accelerating beyond household income growth, a trend exacerbated by a consumer preference for real estate investment due to limited alternatives. This environment enabled property developers to borrow aggressively, supported by the expectation of continuous price increases, with land sales becoming a critical revenue stream for local governments.

    Now in its third year, China’s real estate downturn, exemplified by the Evergrande crisis, has seen housing starts plummet and sales dwindle amid buyer concerns over developers’ financial stability and potential future price declines. In response, China is easing home purchase restrictions and lending policies in some cities, with Premier Li Qiang pledging targeted measures to stabilize the sector.

    Combating deflation and boosting consumer confidence#

    While many economies around the world face a cost of living crisis, China faces a unique challenge — deflation. China’s deflationary trend has deepened concerns amid a backdrop of weakening demand and a troubled property sector. In January 2024, the consumer price index fell by 0.8 percent YoY, the most significant drop in 15 years and the fourth consecutive monthly decline.

    Image: Reuters
    Image: Reuters

    Despite these challenges, there is cautious optimism that the deflationary trend might not persist much longer. The anticipation of government stimulus measures to counter weakened demand has buoyed the stock market, with the Shanghai Composite ticking up.

    Promoting employment and economic growth#

    China has set forth an ambitious growth target of around 5 percent for 2024 and aims to create over 12 million new urban jobs this year. Announced by Premier Li at the opening session of the National People’s Congress, these goals underscore China’s focus on economic revival and employment expansion as the country seeks to navigate domestic and international pressures. Last year, the People’s Republic posted growth of 5.2 percent, with GDP exceeding 126 trillion RMB ($17.5 trillion).

    Despite generating 12.4 million urban jobs in 2023, China faces a formidable task. The drive to create more than 12 million jobs this year highlights the critical balance that needs to be struck between fostering emerging industries and transitioning existing sectors to become new engines of economic growth.

    China’s economic challenges mean consumer confidence is likely to remain muted in 2024, with many middle-class consumers holding back on bigger-ticket purchases.

    With that in mind, it is crucial for luxury brands in particular to focus on some of the same things they did in the early post-pandemic period – namely, improving service and upgrading brick-and-mortar stores where possible, doubling down on digitalization efforts, and looking to duty-free retail in places like Hainan, where more value-oriented shoppers are likely focus their attention in 2024.

    • China is grappling with a demographic crisis characterized by an aging population and a declining birth rate, impacting its workforce, consumption patterns, and economic stability.
    • Efforts to combat these challenges include revamping childbirth policies, enhancing elderly care, stabilizing the economy, addressing the real estate slump, and combating deflation to foster consumer confidence.
    • China is easing home purchase restrictions and implementing measures to stabilize the real estate sector, which is crucial to the broader economy.
    • Brands and investors should monitor China’s evolving policies on reproduction, elderly care, and economic stabilization, as these could signal new opportunities and shifts in consumer demand.
    • China’s interventions to reverse its demographic trends and combat its economic challenges could set a global precedent for managing similar issues, offering lessons on balancing short-term measures with long-term growth strategies.
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