Other BriefingsChina’s Population Decline – The Impact on Business, the Economy, and Labor Markets
China’s population decline has become a pressing concern for policymakers. While the labor force remains sufficient to support economic activity in the short-term, the government is actively rolling out a suite of policy responses to mitigate long-term risks and adapt to the realities of an aging society. At the same time, shifting demographics present new business opportunities in high-value and care-related sectors.
China is the world’s second-most populous country, but its population growth has been slowing down in recent years. In 2022, China’s population declined for the first time in 60 years, marking the start of a long-term decline with profound ramifications for the country’s economy and business environment. Among a range of societal and economic issues that may arise from this phenomenon, the long-term impact of an aging population and a declining workforce are key concerns.
In this article, we will examine the extent of China’s population decline, the potential economic consequences of this demographic shift, and how businesses can cope with the long-term challenges posed.
How much has China’s population decreased?
In 2022, China’s population declined for the first time in six decades. That year, China’s overall population fell to 1.4118 billion, down from 1.4126 billion a year earlier, a drop of 850,000 people, according to the National Bureau of Statistics (NBS). This decline has accelerated in the years since, with the population falling by 2.08 million and 1.39 million in 2023 and 2024, respectively.
According to the UN World Population Prospects 2024 report, China is anticipated to experience the largest absolute population decline between 2024 and 2054, with 204 million fewer people by the end of this period. By 2100, China is likely to have 786 million fewer people than in 2024, losing more than half of its current population.
The demographic shift is caused by the decreasing birth rate, coupled with a rapidly aging population. In 2024, the national rate of natural increase (the difference between the birth rate and the death rate) was -0.99 permille, with 6.77 live births for every 1,000 people, up slightly from 6.39 in 2023 and remaining flat from 2022. Meanwhile, the number of people aged over 60 reached 310.3 million in 2024, exceeding 300 million for the first time, up from 297 million in 2023. Correspondingly, China’s working-age population – those between 16 and 59 years old – decreased from 61.3 percent of the population in 2023 to 60.9 percent in 2024, with a total of 858 million people.
Why is China’s population shrinking?
One of the key drivers behind China’s declining population is its One Child Policy, which was introduced in 1979 and was strictly implemented until 2015. Designed to control population growth, the policy resulted in a reduced number of births and a significant imbalance in gender ratios. This has led to a decline in the number of women of childbearing age, which, combined with the rising costs of raising children and changes in cultural attitudes to work and marriage, has led to a considerable drop in fertility rates. As this cohort continues to shrink, the decline in the fertility rate may accelerate further.
The other side of China’s demographic coin is its aging population. China’s life expectancy has increased significantly in recent decades, resulting in a rising number of elderly individuals. This trend is expected to continue, with the population of individuals over 65 years old projected to double by 2050.
What is the government doing to tackle China’s population decline?
Over the past decade, China has formulated a range of policies aimed at boosting birth rates, such as ending the One-Child Policy and expanding maternity and childcare benefits. But beyond seeking to slow or reverse the population decline – something no country has successfully done – China is also taking a holistic approach to the problems that will arise from a shrinking and aging population. This includes a decision to gradually raise the retirement age, as well as more long-term policies aimed at improving eldercare, fostering opportunities in the so-called “silver economy”, upskilling and retraining talent, and accelerating automation.
Three-child policy and supporting measures
In recent years, childcare policies in China have gradually shifted towards pronatalism. Since 2016, Chinese couples have been allowed to have up to two children, while parents from single-child families have been able to have two children since 2013. This limit was later raised to three children in 2021, giving rise to the so-called three-child policy.
To further incentivize people to have more children, China has also released a series of supporting measures, including tax deductions, affordable childcare services and education, and the introduction of childcare leave.
Moreover, local governments have started to provide financial subsidies to encourage childbirth. For example, couples in Shenzhen who have one to three children are eligible for subsidies totaling RMB 19,000 (US$26,427.8) (one-time payments of RMB 10,000 (US$1,390.9) and an additional RMB 3,000 (US$417) per year until the child turns three).
Despite the shifts towards pronatalist policies, the desired results have yet to materialize. China’s population decline has been further exacerbated by several other factors, including high living costs, shifting attitudes among the younger generation towards family and marriage, and the economic slowdown caused by the COVID-19 pandemic and the country’s stringent measures to contain it. It remains to be seen how effective China’s pronatalist policies will be in the years to come.
Raising the retirement age
To address the impending problems of a shrinking workforce and to reflect the lengthening life expectancies, China has introduced a phased increase in the statutory retirement age. Starting in January 2025, the retirement age for men will be raised from the current 60 to 63 years over a 15-year period. For women, the statutory retirement age will be raised from 50 to 55 years over the same period for blue-collar jobs, and from 55 to 58 for white-collar jobs.
For male employees and female employees working white collar jobs, the retirement age will be delayed by one month every four months until it reaches 63 and 58 years, respectively. For female employees in blue-collar positions, the retirement age will be delayed by one month every two months, gradually extending to 55 years.
Eldercare
The rising share of elderly people in China’s population has implications that go far beyond just economics, with the potential to fundamentally alter China’s social fabric. In traditional Chinese society, elderly parents are looked after by their children, not the state. This is a reciprocal relationship in which the parents act as key caregivers for their grandchildren.
However, the shrinking size of the Chinese family over the last few decades means that this role is falling on an increasingly smaller number of children, with one child often tasked with caring for two parents. Meanwhile, extended life expectancy, while an undoubtedly positive development, also means that people require financial, emotional, and social support for longer. This dynamic may impose additional pressure on the children, who face mounting burdens from their careers, caring for their own children, and supporting their aging parents.
In the longer term, there will also be a growing number of people advancing into old age with no children to care for them at all.
All of this means that elderly people will increasingly need to be looked after by professional institutions. Various types of institutions and living structures, such as retirement homes and communities, are already on the rise, but supply will need to expand considerably to meet the rapidly growing demand.
To support eldercare, China has developed a range of supporting measures, including tax deductions, eldercare leave in some cities, as well as policies to develop the eldercare service industry. In August 2022, the National Development and Reform Commission (NDRC)y released Several Policy Measures to Support the Elderly Care and Childcare Service Industries to Overcome Difficulties. The measures consist of a number of policies that lower costs for eldercare and childcare service providers, including exemptions on rent, reductions on taxes and fees, and the provision of financial support.
In early 2024, the General Office of the State Council has released the Opinions on Developing a Silver Economy to Improve the Well-being of the Elderly, a 26-point document that aims to enhance social infrastructure to better support the elderly by ensuring access to essential services such as meals, healthcare, home and community care, and educational and recreational opportunities. It also promotes coordinated efforts across sectors to improve the quality of life for older adults, particularly through localized, accessible, and inclusive service systems.
Private pension schemes
In 2022, China launched its first private pension scheme. Private pensions will act as the third pillar of the country’s pension system, supplementing the public basic pensions and voluntary employer-sponsored pensions, with the aim of boosting long-term savings and strengthen retirement security. The rollout began with a policy framework in April 2022, followed by pilot programs in select cities where individuals could open personal pension accounts and invest in approved financial products. The scheme has been backed by tax incentives to drive participation, with participants permitted to deduct up to RMB 12,000 (US$1,669) from their annual taxable income and reducing taxes on pension benefits.
On December 15, 2024, the government expanded the scheme nationwide, opening access to all workers enrolled in urban or rural pension insurance. Regulators also broadened the pool of eligible investment products, including treasury bonds, special pension savings, and low-volatility mutual funds, while mandating clearer risk disclosures and building a robust digital infrastructure for account access and management.
China is positioning the private pension system as a key tool for tackling population aging, helping to ease the long-term fiscal burden on the state, reduce pressure on the public pension system, and provide individuals with greater financial autonomy and dignity in retirement, even as family-based support networks weaken.
Automation and increasing productivity
As China faces a shrinking working-age population, the government is broadening its approach to address impending labor shortages and enhance productivity. This demographic shift aligns with long-standing national efforts to transform the country’s economic structure, moving away from low-end manufacturing toward advanced manufacturing, high-value services, and cutting-edge technologies.
Automation is emerging as a key solution to both the labor shortfall and the push for industrial upgrading. By reducing reliance on human labor, automation can help offset workforce declines while increasing the output and sophistication of manufacturing. Traditional labor-intensive industries such as textiles, home appliances, electronics, and automotive manufacturing are becoming increasingly automated or shifting production to lower-cost countries.
At the heart of this transformation is the government’s policy platform on New Quality Productive Forces (NQPFs), a flagship initiative aimed at modernizing traditional industries through technological upgrades while accelerating the development of strategic frontier sectors such as artificial intelligence (AI), biotechnology, and robotics. NQPFs have become a central pillar of China’s economic agenda, guiding investment, industrial policy, and long-term planning.
Notably, sectors like humanoid robotics and AI healthcare hold the potential to revolutionize eldercare, addressing rising demand with fewer workers while improving care outcomes and boosting efficiency in the healthcare system. Together, these efforts reflect a strategic pivot toward leveraging technology to sustain economic growth in the face of demographic decline.
Impact of China’s population decline on businesses
China’s deepening demographic shift has far-reaching implications for its economic growth. Previously, the country’s rapid development was fueled by its “demographic dividend”—a large proportion of citizens of working age. Over the last four decades, China’s labor-intensive, export-led model has enabled the country to transition from an agrarian economy to an industrial society with high living standards and income levels. However, China’s demographic shift has put a question mark on its continued growth trajectory, future labor force, and market potential.
Will China experience labor shortages?
One direct consequence of a declining population is the loss of human capital. This means fewer entrepreneurs, innovators, and skilled workers to fuel the economy and spur further economic growth. The aging workforce and a shortage of younger workers may make it difficult for businesses to find the labor needed to meet demand. As some businesses rely more on physical labor than others, the shrinking labor force affects certain industries more severely than others. Some industries, such as manufacturing and construction, are already beginning to experience this reality, though labor shortages may be as much due to shifting attitutdes toward manual work among younger people as the result of the shrinking workforce.
A decline in younger manual laborers will also lead to an increase in labor costs, which could make it more difficult for Chinese companies to compete in the global marketplace. As discussed above, investment in automation may mitigate the impact of the shrinking workforce for certain sectors, while others will move to countries with a younger workforce and lower labor costs.
Despite the long-term concerns a significant labor shortage is not expected in the short term as China still has a large pool of active workers. China’s labor force was estimated to be around 734.4 million in 2024, according to the National Bureau of Statistics.
Will the Chinese market shrink?
The declining population may result in a shrinking market with fewer customers, which will have a direct impact on the market size. This might result in a decline in demand for goods and services, potentially harming the country’s business growth. An aging society may result in a decrease in consumer expenditure, as the elderly are less inclined to spend money than the young – the so-called age structure effect.
However, the market size depends on a number of factors, such as the country’s economic growth, consumer spending, and the ability of businesses to innovate and adapt to changing market conditions. On the positive front, a decline in population size can enhance per capita income, lower unemployment rates, and elevate the level of disposable income, all of which foster a strong domestic market.
Meanwhile, the Chinese government has geared the economy toward its domestic market with the dual circulation strategy and has invested in higher-value-added products. Over the last few years, the government has also intensified efforts to boost domestic demand. These include issuing guidelines to boost services consumption in August 2024, and, in March 2025, releasing the Special Action Plan to Boost Consumption.
Meanwhile, China still has significant room for income growth. In 2024, China’s national per capita disposable income reached RMB 41,314 (US$5,746.52) – around 11 times lower than that of the US. While it is not guaranteed that China will reach income levels on par with the US, there is still significant room for growth in economic activity, household wealth, and domestic consumption levels.
Will China’s demographic shift create new business opportunities?
Despite the challenges posed by a declining population, China’s demographic shift also presents a host of new opportunities. It will be important for businesses to adapt to changing social trends and seize opportunities to ensure a prosperous and sustainable future.
Healthcare, eldercare, and the silver economy
As China’s population ages, there will be increasing demand for healthcare, eldercare services, and related products, which will require significant investments.
Healthcare was already among the highest priority investment areas for the Chinese government after the COVID-19 pandemic exposed gaps in the system, and the country’s aging population only adds more pressure to improve service provisions.
According to China’s National Bureau of Statistics, the proportion of the population aged 60 and over reached 22 percent in 2024 and is projected to rise to 34.9 percent by 2050. Increasingly affluent working-age adults may turn to private sector services, such as long-term care facilities, to tend to their parents and grandparents due to limitations in the public healthcare system. In addition to eldercare services, the aging population will require products, such as pharmaceuticals, medical devices, and disability aids, in greater numbers.
It is estimated that the value of China’s eldercare market will reach US$3 trillion by 2030.
Higher education and vocational training
The popularity of higher education and the broader importance placed on education in Chinese culture present significant opportunities for investment and growth.
China is facing a shortage of highly skilled workers, particularly in the technology, healthcare, and engineering sectors. This is due to a combination of factors, including the declining population, a preference among young people for non-manufacturing jobs, and a growing demand for highly skilled workers in these industries. A shrinking labor force also means upskilling and re-skilling will be essential to stay competitive and boost the value of talent, especially as technologies such as AI reduce reliance on humans for menial tasks. This presents considerable opportunities for vocational and skills training, as well as technical certification services.
Against this background, while most education industries in China are becoming more restrictive to private investment, vocational education continues to be encouraged by the government. China believes upskilling its workforce is key to the country’s continued economic growth. Those focusing on training and development are advised to explore talent-based and higher-tech opportunities in the China market.
Moreover, although birth rates are declining, smaller families with fewer children will spend more money on education, providing significant opportunities for higher-value education products and services.
How businesses can prepare
The declining population will present several challenges to businesses in the long term, including a shortage of labor, rising labor costs, and a shrinking consumer base. To prepare for these challenges, businesses will need to be innovative and adaptable. To prepare, businesses can consider the following:
- Invest in automation and technology: As the labor force declines, companies may need to invest in automation and technology to compensate for the shortage of workers. This will require investment in research and development, as well as training for employees to operate and maintain new technologies.
- Invest in training and development: To remain competitive in the changing business landscape, companies will need to invest in the training and development of their employees. This will help to build a skilled and adaptable workforce that is capable of meet changing market conditions.
- Diversify products and services: With a shrinking consumer market, companies may need to diversify their products and services to appeal to a wider range of consumers. This could mean expanding into new markets, developing new products, or adapting existing products to meet changing market demands.
- Offer flexible work arrangements: To attract and retain workers in a competitive labor market, companies may need to offer flexible work arrangements, such as telecommuting, flexible hours, and remote work options.
- Develop strong local partnerships: Foreign companies in China can benefit from developing strong partnerships with local companies and organizations, which can provide access to local knowledge and resources.
To succeed in this changing landscape, companies will need to be flexible, innovative, and proactive in their approach to the market.
Summary
China’s declining population has the potential to have a significant impact on the country’s economy in the coming years. An aging population and declining workforce could lead to increased social security costs, a slowdown in economic growth, a shortage of skilled workers, a loss of human capital, and increased labor costs. However, it is yet to be seen how the Chinese government will address these challenges and whether the policy package can mitigate these to ensure the country remains competitive in the global economy.
While the decline in China’s population is a cause for concern, it also creates opportunities in areas such as education, healthcare, innovation, technology, and more. In fact, these sectors are expected to be further encouraged by the Chinese government. Prospective investors should pay close attention to regulatory and market trends in these sectors.
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Dezan Shira & Associates assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Haikou, Zhongshan, Shenzhen, and Hong Kong. We also have offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Dubai (UAE) and partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh, and Australia. For assistance in China, please contact the firm at china@dezshira.com or visit our website at www.dezshira.com.
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