The Coming Demographic Impact on China's Growth: The Age Factor in the Middle-Income Trap

Abstract

Thanks to successful economic growth, social development, and strict implementation of family planning policies, the demographic transition in China has been accomplished at a much earlier stage of development than in other countries. I call this outcome “aging before affluence.” As a result of this demographic transition, China has already passed through its Lewis turning point, and its demographic dividend from the decline in the population dependence ratio is about to end. I identify a potential nexus between “aging before affluence” and the “middle-income trap.” China is losing comparative advantage in labor-intensive industries, but China is not ready to gain comparative advantage in technology-intensive and capital-intensive industries. For China to avoid the middle-income trap, it must (1) transform economic growth to a consumption-driven pattern; (2) shift the labor-intensive industries to the central and western regions; and (3) speed up technological catching up.