On March 16th the Hanns Seidel Foundation and the Central Party School (CPS) jointly organized a conference on "Demographic Change in China and Germany - Social Challenges and Policy Options" as the latest installment of our academic dialogue program.

In his opening remarks, Prof. Zhang Zhongjun, Deputy Director of the CPS General Affairs Office talked about the impact of the one-child policy in China. Although it proved effective in countering rapid population growth, thus playing a positive role in the overall development of the country, Chinese society is facing a very different situation today as it enters an accelerated process of aging. With a shrinking labor pool China is losing its demographic dividend and new challenges arise.

In her presentation on "Demographic Change and the Transformation of China's Development Model", Prof. Dr. Shi Xia (CPS) emphasized that China’s economic development is unbalanced, with a dominating industrial and an underdeveloped service sector. While almost three-quarters of the population are currently integrated in the labor market, especially in labor intensive low value-added industries, the age structure of the labor force is changing quickly, making an industrial upgrading and economic restructuring a priority for policymakers. But this transition will be accompanied by a loss of jobs in labor-intensive industries and a rising demand for skilled workers, said Shi Xia. A reform of the education system with a greater emphasis on vocational education will thus be one of the main policy tasks in the years ahead.

Since the 1970s the fertility rate in the Federal Republic of Germany has hovered around 1.4, Dr. Steffen Kröhnert of the Berlin Institute for Population and Development noted in his talk on "The Demographic Situation of Germany: Causes and Consequences", and the German population is steadily shrinking. Currently about 82 million people live in Germany, but based on recent demographic projections a further decline of approximately 10 to 15 million people is expected by the year 2060, to a total of 65-70 million inhabitants. This will lead to profound changes in the population structure as the proportion of people of working age will fall by roughly 25 percent by 2040, while the number of people aged over 80 will double. Contrary to the past decades, during which the aging process was taking place more or less simultaneously nationwide, the population development tends to be more irregular now with cities and metropolitan areas maintaining their population or even recording growth, while rural areas see a significant decline in population, indicating permanent changes in the German settlement structure.

Against this backdrop migration processes play and will continue to play an important role. About 20 percent of the German population have a migration background, meaning either they themselves or at least one of their parents immigrated to Germany. This number continues to rise, in part because of higher fertility rates in this segment of the population. About one third of all German children have a migration background. Due to language barriers the integration of immigrants into the labor market has at times been difficult. But in this regard the expected demographic shift of the coming decades can be seen in a positive light, as the employment prospects of previously disadvantaged groups will improve. According to Kröhnert, the main policy task now is the development and implementation of a wide variety of measures in order to adapt to the changing population and labor market structure. Improving the integrating of older workers and women in the workforce through a later retirement age and modern family policies helping to reconcile work and family life as well as a proactive immigration and integration policies were named as important steps.

Asked about ways to counteract the continuing depopulation of rural areas in China in the ensuing discussion, Kröhnert admitted that options are limited. But a promotion of townships and smaller cities in rural areas can help balance migration processes by greatly improving living and working conditions in the countryside. He also cautioned that in Germany and China alike a fundamental change in attitude has taken place over the past decades. Nowadays people prefer smaller families or even decide to remain childless, a development that has proven difficult to reverse. It has become apparent in modern societies that desire for children is by no means a law of nature. With 1.5 children per woman China’s fertility rate is almost as low as Germany’s, Shi Xia noted, although this is mainly a result of the one-child policy. Against the backdrop of China's slowing population growth and demographic change she argued for a more flexible family policy.

The second part of the event focused on the implications of Chinas demographic developments for the labor market and social policy, with Prof. Xu Pinghua of the Department of Economics of the Central Party School discussing the shift "From abundance to shortage: A transformation of the Chinese labor market" and Dr. Günter Schucher from the GIGA Institute of Asian Studies speaking about "The 4-2-1 problem: Aging, Family and Social Security in China".

As Xu Pinghua stressed, the Chinese labor market is undergoing fundamental changes as the age structure of the workforce is rapidly changing and the large supply of labor that has shaped the Chinese labor market in the past is replaced by increasing labor shortages, not only in low value-added industries in the coastal areas but across regions and industries. This process is accompanied by rising wages, especially in the case of unskilled workers like rural migrants. At the same time there are structural imbalances in the labor market. Contrary to the shortages in the manufacturing sector, there is actually a surplus of white collar workers and university graduates in particular have difficulties finding employment. Employment opportunities for vocational school graduates on the other hand are increasing, as there is rising demand for their skills. In light of China’s demographic outlook, structural economic reforms and an industrial upgrading are a necessary step for the country’s future development, says Xu. This has to be accompanied by a reform of the education system as well as the household registration system (hukou system) and further development of human resources, including a restructuring of the labor market.

Since the year 2000 Chinese society is aging, Dr. Günter Schucher emphasized at the beginning of his presentation. While in most old industrial nations this process took place over a long period of time, in China it is not only happening at an accelerated pace, but also against the backdrop of low income levels, making it even harder for the country to prepare for the demographic shift. The impact will be most visible on the labor market: Between 1980 and 2010 around 360 million people flocked to the labor market. But this trend is already starting to reverse and by 2050 the labor market will be deprived of 233 million people. A rising age dependency ratio also means that the social and financial burden of the declining work force will steadily increase. In 1950, there were 7.7 people of working age (15-59 years) per person over 60 years. By 2010, the ratio had already fallen to 5.5:1, and according to forecasts the ratio will be a mere 1.6:1 in 2050.

Whereas China's age structure is that of a developed country, its social security system is underdeveloped and the time frame for reform in order to provide coverage for all citizens is limited. Despite great efforts in the field of social policy in recent years, the lack of a unified pension system leaves China poorly prepared to counter the challenges brought about by an aging society. Different systems coexist and administrative responsibilities are fragmented among different ministries as well as levels of government, leading to high administrative costs. The pension systems are further burdened by legacy obligations and low replacement rates. The resulting low level of coverage and low pension rates are the main reasons why people still rely on the family as the main source of support in old age. But although the family has traditionally played a central role in supporting the older population in Chinese society, this too is changing as a result of demographic and social developments.

In light of this situation there is a strong need for reform in regard to economic, social and labor market policies. While Schucher noted that key aspects are already included in the 12th Five-Year Plan, he stressed that further action is needed in regard to promoting the mobility of workers, adjusting the retirement age, creating a unified pension system and relaxing the population policy in order to face the challenges of demographic change.

In a second round of discussions the participants talked about the future role of the hukou system—effectively dividing the population in urban and rural citizens with different rights— which is drawing mounting criticism. While in the past the hukou system was accepted as a necessary means to contain mobility and manage the speed of urbanization, it is now increasingly seen as unfair and out of touch with reality, says Xu Pinghua. He advocates decoupling the hukou status of citizens from basic rights and social entitlements in order to promote social justice and better integrate migrants in the cities. The urban-rural divide should be abolished, with the hukou system merely serving as a population register. But he also cautioned that this aim can only be achieved through gradual reform as a sudden abolition would increase migratory pressure on urban areas whose resources are already strained. Prof. Yang Hengda from Renmin University added that an overhaul of the hukou system is necessary and should be complemented by policies like the promotion of rural areas as well as townships and small cities. Providing people with opportunities for personal development is the only effective way to prevent mass migration to metropolitan areas, he stressed.

Dr. Cai Heping of the Chinese Academy of Governance disagreed with Xu Pinghuas labor market analysis. According to her, labor shortages are not a nationwide phenomenon that might spell trouble for the country’s development in the coming years. While she agreed that there is a lack of migrant workers in coastal areas and a strong demand for younger workers, she argued that this is mostly due to the fact that, contrary to the past, workers are not as willing to follow and accept any and all employment opportunities. While all agreed that it is the labor-intensive, low pay industries that are most affected, the ensuing debate illustrated the different positions of Chinese academics on the topic. Participants also further explored the challenges ahead in China’s labor market and social reform.

The presentations and lively discussions made clear how demographic change impacts almost every area of life. Both in China and Germany policymakers as well as society as a whole are faced with the difficult task of not only reacting to but proactively shaping this process in order to safeguard social cohesion and a steady development.