China's Demographic Dilemma

China is one of the 21st century's most consequential nations. It has never been more important to understand how the country is governed, and what its leaders and its people actually want and believe. Welcome to peckingology, the podcast that unpacks China's evolving political system, and the trajectory of China's domestic and foreign policy. I'm your host, Henrietta Levin, senior fellow with the Freeman Chair in China Studies at CSIS. This is peckingology. I am very pleased to be joined today by Dr. Pip O'Keefe or a special Tuesday episode of peckingology. We normally release new episodes, as many will know on Thursdays, but doing Chinese politics on Thanksgiving seemed like a bit much even for me. Pip is a professor of practice at the University of New South Wales Center for Population, aging research, and he is one of the world's leading experts on demographic trends and their societal impact in China and across Asia. The Chinese population is aging and shrinking, and it is aging and shrinking more rapidly with every passing day. Demographics may not be destiny exactly, but these trends will have a massive impact on the Chinese economy, society, and political system in the coming years and decades, and I am so glad that Pip is here to help us understand these big trends. Pip, it is great to see you. Thank you, Henrietta. We like to start all of our episodes with a question about our guest's professional origin story. So how does one become an expert in Chinese demographic friends and their societal implications? Well, in my case, I would say don't start from here because my first degrees were in medieval English literature and law at the double degree in Sydney, which wasn't very related to anything I work on now. But I think the key thing was in that time studying in Australia, I started travelling a lot in developing countries and realized that's where I wanted to work. Somehow or other, at some point, kind of thing that they excited me a great deal. So I did further studies. I went for my grad studies in the UK at LSE in Oxford and I kind of transitioned the law part into economic law and then ultimately into economics. And then at the end of that time in the UK and I was teaching at university there, I had a kind of fortunate transition to a three month assignment in the World Bank which ended up lasting for 28 years. And of course in the bank, you move from region to region, I started in former Soviet countries when to South Asia and ultimately to East Asia for the last 10 or 12 years of my career. And that's where I got into. I was very much in social sectors and of course aging brings in so many dimensions of social sectors. So yeah, that was kind of the route, which was rather secuartous, but got me there in the end. Well, we're all very lucky you got there in the end. To start with the basics, what are the key demographic trends in China today? I think the first one you just mentioned, the rapid aging is one. And most of these you read about in the press, but rapid aging is clearly one. If you look at the population 65 and above, it's about 15% of the population now. By 2050, that more than double to just over 30%. And by the end of the century, that's somewhere between 46 and 64% of the population depending how you look at fertility assumptions. But just taking the 2050 point, that's the structure that Japan has now. It's the share of elderly Japan has today. China will have in 2050. So you think of Japan as the oldest country in the world currently. China will look like that. That's the first. The second, which is probably the primary driver of that aging is the dramatic fallen fertility in China that we've seen. The fertility rate is now around one. So the average woman will have around one child in her lifetime. And that's very low by historical and by global standards. One of the lower ones in the world. There's a many reasons behind that. But one, in particular, just from a pure demographic point of view, the fall in marriages in China has been really sharp. And people tend not to have kids in China unless they're married. So last year, you had about just around 6 million marriages. It was less than half of the 13 and a half million years or in 2013. So really sharp fallen marriage, which is partly contributing to that fallen fertility. So those kind of trends. If you look at the overall population, I think many of us would have read that from about 2022, the overall population, total population, started to shrink. It's very modest at the moment. It's one or two million a year shrinking. So by 2050, you still got a big population. You got between 1.21.3 billion people still. So still, you know, second largest country of the world. But it really accelerates in the second half of the century. And by the end of the century, again, depending on whether you take today's fertility or a higher assumption, you have between 430 million people in China. So a 70% to a 55% reduction in the current population. So really, that's where the really young dramatic effect's kicking. The other one that's of course preceded the total population decline is the labor force share. The labor force in China is a share of the population peaked around 2010 to 2012 somewhere in there. And again, each rate of the client will kind of precede some of that total population decline. So by the end of the century, you get, you know, well less than half of the population who are working age population. And then the final thing I would say just quickly is the dog that didn't bark, if you like, and that's the absence of immigration into China. The foreign-born population in China is 0.1% of the population according to the 2020 census. In the US, by comparison, about 14% of my own country is straight to 30%. Even in Japan and Korea, which we think of as really low immigration countries, Korea is about four, Japan is about two. So China is really a dramatic outlier on the downside. Basically, you know, very, very little net migration into the country. In contrast, the internal migration, as you would know, has been huge. And the movement across provinces from rural to urban areas, so you have about 286 million rural migrants or 20% of the population or so are not living where they were born. You know, they've often moved opportunities in the city. Maybe I'll stop there. That's a lot of facts and figures. Breaking down some of those really powerful numbers, are there significant differences in how these demographic trends are playing out across China, maybe putting internal migration aside, or are we looking at basically the same story when it comes to aging, when it comes to fertility in a city like Shanghai, or all the way out to Goyejo, do we see similar trends, or are these different stories? I think the direction of travel is common. So, you know, falling fertility, steady aging of the population, et cetera. So that's common across the country. However, there are quite noticeable variations in how far that's advanced and how acute those transitions are, how rapid they are. The most extreme of the Northeastern provinces, the kind of Palomjang, Deline, Lowning, and their birth rates, if you look at recent years, are about half the national average. So, you know, substantially lower than the national averages. In contrast, if you look at the south and southwestern provinces, so I'm thinking to bad, way, Joe, Ching Hai, places like that, to bad, for example, is about double the national average. So you do get variation, but I guess some of those places tend to be amongst the smaller provinces, so, you know, it doesn't necessarily change the overall picture. The fertility rate, for example, is still higher in rural areas than it is in urban, but even there, there's a gradual convergence between the rural and the urban areas towards the urban pattern. So, I think all the directions of travel are the same, but how quickly they're getting there and things is a little different. And certainly, if you look at those provinces that are higher, they tend to be ones with high shares of ethnic minorities as a rule as well. To help us understand how these demographic changes are sealing in China, could you give us an example of how these trends are shaping Chinese society in a more concrete bubble? Well, I think of that kind of family level. We read a lot about this, and you can imagine a whole generation of more or less only children to generations now of only children. That's got some upsides. You can invest a lot more in their education and kind of, you know, really invest in these kids, and that's the classic human capital story of quality versus quantity kind of story with kids. But of course, those kids are under enormous pressures and expectations too, to perform, to deliver ultimately later in life to support their parents. So I think, you know, that's a lot of mixed thing in the society. What you see more generally, I think, is the norms of filial piety, which are, you know, the confusion norms for wherever in China. I think they're evolving as well. I think they're still quite strongly there, the filial piety, but they're less that very strict hierarchical kind of confusion notion and more about, you know, kind of negotiated bargain kind of situation, less co-residents of people generationally and that kind of thing. What it all means, I think, also is that the role of the state, you're moving from society that had, you know, a lot of the support to older people was traditional, informal family sources of support. Well, clearly moving to a position where the state has had to step up, you know, kind of, I won't say entirely step into the family role, but to complement the family much more than it did historically. So there's a real shift in the social dynamic, I think, between state and citizens as well, state and family. And even as China's trying to navigate these evolving demographic trends, it's also, of course, struggling with a slowing economy. And even while we see a Chinese economy that's turning out incredible innovations and technological breakthroughs for many workers or students or families, upward mobility is feeling increasingly out of reach. What is the relationship between the big demographic trends you've described and the big economic trends of this moment? There is certainly a closer relationship. If you look back first from the 60s to the early 2000s or so, various economists would say that the demographic dividend, you know, the population growth and the growth and working-owned population accounted for maybe 15 to 25 percent of China's growth in that period. As we all know, particularly from the late 70s onwards, that growth was really high. So they certainly was a tailwind, demographics were a tailwind to growth in that period. Being ahead, there are various estimates, but they say one very reliable one, I think is David Bloom and colleagues from Harvard looking from 2020 to 2050. They say by 2050 around 1 percentage point lower growth per year due to demographics, which would be, you know, current growth rates maybe 20 percent lower growth. The IMF looks out to the end of the century and says by the end of the century, that'll be 2 to 3 percentage points lower growth per year as a result of the demographic. So pretty strong impacts. Now they're kind of headline numbers. A couple of things I would say to qualify that one is a glass half form, one is a glass half empty story. The glass half full is that as Labor 4 shrinks and that kind of thing, you can substitute capital for labor and China is doing that, you know, gangbusters, you know, robotization, automation, you know, it's really the installation of things like industrial robots in China is through the roof, you know, probably with Korea the highest in the world. So you can offset some of that population decline with this capital deepening that China's already seen. And if you look historically at already old countries, Darren Assamoglu, the Nobel Prize winner in economics has looked at this and found that impact aging accelerated technological adoption and automation, which accelerated productivity growth. So, you know, these things can actually induce positive changes in productivity as well as negatively impact them. So that's kind of glass half full story, glass half empty would be fiscal. Like any country that's aging rapidly, you're going to have pressures on the pension system, the health care system increasingly, although Silveray underdeveloped the long term care system in China. Just to give you an example of that, even though China reformed its pension system in 2024 increased the retirement age and other measures, its pension system nationally runs deficits from the early 2030s. I've done some modeling recently at my center and by 2065, the annual deficit of the pension system is about 8% of GDP and the cumulative deficit is about 140% of GDP. That's just the pension system. So you've got enormous fiscal pressures in the absence of further policy reform in these kind of social sector areas. So I'd say on the aggregate growth, it's worrying, but it's an issue that you can deal with or mitigate to some extent. On the fiscal side, that's much more challenging both in policy reform and the politics and policy reform of those sectors, which we know are difficult. What you mentioned about the debt burden associated with pensions is particularly striking because I think there's a sense that the pension system is quite underwhelming and doesn't really provide adequate protections or an adequate safety net, especially amid broader demographic trends. So I guess how do you see the party managing the tension between the need to build a more robust social safety net, a more robust pension system and the corresponding economic challenges that are associated even with the current very limited system? Yeah, it's interesting. I would say if you look at China's safety net generally, it's still definitely work in progress. The tell tale of that is that the level of precautionary savings amongst households remains very high and remains very long, you know, into old age kind of thing. So people are clearly concerned that health costs and care costs and other things in old age are going to hit them hard. So that tells you they're concerned about their level of financial protection from the social security system. However, there's been a lot of improvement at the same time. It's gradual, it's incomplete, but it's there. So if you take out a pocket health spending, for example, at the turn of the century, that was about 60% of total health spending was out of pocket. Now it's just under 30%. So there's been progress in expanding social health insurance, it's about 95% coverage of that, but you know, still a lot of catastrophic health spending happening. So it's a kind of interesting story. I think a mixed kind of picture of a positive direction, but still look quite some way to go. In short, you've got, as you have in much of China, these separate systems for formal sector workers, normally in urban areas and informal sector, often in rural or urban informal workers. And there, I think if you're a formal sector worker in urban areas, the pension system, and you know, the generosity of an old age is not too bad. It's pretty comparable to many countries, not kind of Western European levels necessarily, but not bad. If you're in the informal sector, they have introduced a pension system, what's called a residence pension system in recent years. And that's now got very wide coverage, which is great. And that's happened over the last decade or so, but its adequacy is really modest still in most parts of the country and very variable, depending on the fiscal position of local authorities. So the pension story, I think, really depends. It's a story of two sectors as to how well you're protected. And then the final part of the story, I would say, briefly, is the social assistance, so the kind of real safety net kind of programs that you would think of. And there, the stories, I think, consistently modest. Coverage is only 3% of the population. They deepen the package and the benefits for that group, but it's still a very narrow kind of safety net there. So if you're not picked up by social insurance, the chances of you being picked up by social assistance are relatively slim. So it's adapting, but it's a race against demographics also. And demographics are moving so quickly and these big systems like held and pension and stuff, they're like big ships that don't turn around on a dime. You know, they take a long time to navigate and China's in that process, but it's a kind of race against time. I would say generally they prioritized expanding coverage of programs versus their adequacy. So they've got wide coverage of pensions, wide coverage of social health insurance, but for the informal sector in particular, it tends to be fairly shallow coverage. You mentioned that one of the reasons household savings rates are very high in China is because people want to be prepared for cost associated with health care or with aging with elder care. And of course, economists have warned for decades that low consumption, very high savings rates in China threatens to constrain longer term economic growth. So how else might the aging society in China affect household consumption? Yeah, it's one of the kind of million dollar questions or million yuan questions for China, I think. First of you look at OECD countries, most of them, older people tend to account for a higher share of total consumption than their population share. That doesn't appear to be the case in China. So Chinese academics have looked at this. And they find if you look at the old age dependency ratio, so the share of elderly compared to working age, that that seems to negatively affect overall consumption. So the more aged are provinces or the country becomes, it seems to have a negative effect on overall consumption. And that's for the reason she just said of the hyper cautionary savings and people saving till much later in life, the savings rates of elderly are often higher than they are of middle age people, which is again unusual from richer countries. So at the aggregate level, it appears to be not coming to the party the way older people do in OECD countries. At the composition level, it definitely has an effect though. In both rural and urban areas, higher spending on health, the capital energy spending is higher amongst older people than younger people, which is interesting for the kind of green transition in the country also. They should spending tends to be higher amongst urban elderly, but not rural, elderly, that kind of thing. The government's responding to this in 2024, the state council had a set of guidelines on the silver economy, which they call it, and the longevity economy is other's quality. So basically looking at older people as consumers and trying to respond to that with goods and services that will target them. And there's really an intensive effort to stimulate that silver economy as a new source of growth in the economy. Now, of course, it's chicken and egg to be an older consumer in any level. You have to have money in the first place. So, you know, that clearly has happened. But it's also about releasing these precautionary savings. It's not that people don't necessarily have some money in the background, but they're reluctant to part with it. So the silver economy initiatives, the government are really important in that area. And they go across a whole range of sectors, tourism, healthcare, insurance, consumer goods, tech, whole industrial clusters devoted to this. So it's an interesting stage. And I think the authorities have recognized this. They're certainly throwing the kitchen sink at it in policy terms. But it's very early days, and I'll be interesting to see people feel confident enough to respond to these supply side kind of interventions. And beyond this silver economy work, how is the party looking at the democratic challenges facing any society? What do you see as the parties top goals? And what are some of the most important steps they've taken so far? Well, clearly there's been a big U.T. in the last decade. That goes without saying. There was a lot of domestic questions about how long the one child policy continued for for many years. So they've shifted from that to a really quite actively pronatalist policy. Now, you had the two child policy kicked in about 2015-16. And you had the three child policy kicked in 2021. And that was a kind of CPC central committee decision and legislative amendments and the like. 2022, I think there was a really important, they were called lighting opinions. I always love the name of Chinese policy documents, always have their own flavor. But these were 17 ministries jointly kind of initiating and pushing a whole slew of things that were meant to encourage higher fertility and greater work-like balance. So basically reducing the cost of child bearing, child rearing education expenses. So you've got tax deductions for children, childcare subsidies, parental leave, including paternity leave, improved direct interventions like subsidization of IVF and fertility treatments. You've got lump sum baby bonuses. You've got recurrent child allowances. You've got housing allowances. They're really throwing a lot of interventions or I would say throwing a wide policy menu at this. Of course, a lot of how that players out happens at the subnational level. And the extent to which this full menu is taken on board, the extent to which it's financed generously or less so and that kind of thing. There's really, I wouldn't say a policy panic, but certainly a policy urgency of the country on these pronatalist kind of measures. And a lot of them are the kind of things that richer countries would say sensible things, the childcare things are this baby bonuses put to the side. I don't think that's a terribly effective or necessarily sensible thing, but ongoing child allowances perhaps more so. So yeah, it's certainly a very active policy space, but a lot of the effectiveness of the implementation of those policies is determined by the local fiscal position. And that's where you get this real patchwork of how things look on the ground, both in terms of what policies are there in terms of how well they're funded. What do you think the odds are of these measures, this approach, this very pronatalist policy, actually bending the demographic curve in a direction that might significantly diverge from the numbers you shared at the beginning of this conversation? Do you see potential for the party really changing China's demographic best of name? If you look globally, you can't be a great optimist on this. Something very few countries, even when they've thrown money at it and thrown policies at it, whatever. Really, you may stabilize the fall, perhaps, you know, that may be the best you can hope for. Getting a substantial reversal, I think, is unlikely. That's in the absence of some kind of more mandated or coercive approach, which is not the direction of travel. So, yeah, there's a few countries that have had small upticks kind of thing. Countries like Norway and Hungary have had a little bit of uptick, but they've never got back anywhere near replacement rate of fertility. You know, a lot of countries, I would say, wasted a lot of money on this. Now, other parts of this policy package, so you may want to do anyway. So think child care and think female labor force participation or parental labor force participation. You want to do that anyway when you've got a shrinking labor force, you know, independent of fertility and other things. So a lot of these things are economically sensible anyway. Some of them are baby bonuses being an example. So it's not to say that there's silly things to do. I think they're worth trying and worth doing, but I'm personally would not hold out major. Hope that, you know, you get a significant uptick. In fact, the only upticks ones tends to see 2023, for example, there was an uptick in birds, but that was much more about post-COVID year of the drag and things like that, that are more kind of cultural and exogenous kind of thing than policy driven. Diving into more recent policy developments coming out of Beijing at the fourth plenum last month, we saw the party release its initial thinking for the upcoming 15th five year plan. Do you think the next five year plan will address the implications of China's aging society in a way that is meaningful or perhaps an evolution beyond the 2022 measure you just described? My guess would be, I mean, we're all guessing to some extent, is that it will be kind of incremental rather than, you know, paradigm change. Let's put it that way. So at the macro level, we already talked about this kind of deepening of advanced technologies in production, so automation, robots, AI, et cetera. And that's the kind of response to the shrinking work was to the aging issue kind of thing. That's happening anyway, it will continue to happen, it will deepen and accelerate, I've got no doubt. If you look more specifically at aging targeted per se, I think certainly there'll be more investment in these areas, but I think the areas themselves will probably prove primarily in that menu from the 2022 state council decision, because really they cover a pretty broad way that things, you might be able to come up imaginatively with additional areas, but you know, pretty much they cover the ground. It's a question of how well it's financed and think. So obvious area being care, application of AI and new technology with wearables, home monitoring, care robots, smart homes, 3D AI retrofitting of homes, things like that, digital platforms for community, home base care, things like that, workplace adjustments to extend productive work in lives, and some of that maybe tech, some of that may be more economic, FinTech, online learning, all these kind of several economy things, but I don't necessarily see there'll be a fundamental shift. A fundamental shift would involve that real consumption jump that we talked about before, a willingness to really put more money in people's pockets from the transfer side of the economy, or perhaps to loosen some of the labor taxation and things like that, which is quite high in China in the formal sector. That would be a real jump shift if you went there, but there does seem a reluctance of the senior leadership to go too far down that route. There's a recognition that that transition to more domestic consumption is important, but that kind of, if you like, well-ferrest, or what's seen as well-ferrest approach to stimulating consumption doesn't seem to have a lot of appetite. Although we know from many other countries that even though it's characterized as well-ferrest, often the economic multiplier effects of these consumption stimulation through transfers in the tax system and the like can be quite substantial. At the moment, I don't see that being the shift. I would love it if it was, but I don't see it coming necessarily. Well, putting consumption aside the measures that have been prioritized by the party so far, you've mentioned will be effective or not in large part-based, when whether real resources are placed behind these policies. What are you seeing so far? Does it seem like there is real resource allocation to pursue credible implementation of these strategies for you not expect to see money being put where the party's mouth is on this? I think in some areas it is being put, I guess here you've got to think national sub-national very much. If you start with sub-national, some areas of the country are really trying resources at this. I was really about the city of Tenmen in Hubei province the other day. They're giving tens of thousands of dollars cumulatively to households to have one, two, and three children, and that ramps up the more kids you have. I think you get something like $17,000 to $18,000 cumulatively. It seems to, at least in that city, it's a very pointy thing. They seem to have had, I think, was a 17% rebound in births since they introduced these. That's unusual, but it's a lot of money that's wrong at it there. The places that have introduced policies and the like, I think it's seen a more modest response. I would say national government in areas like childcare, definitely is stepping up a bit in areas like pensions, there's more central funding, healthcare and stuff. Certainly over time, the central government has been kicking in more, but so much depends on the sub-national level. The other thing I would add is, and where government, I think, probably has a lot less influence anywhere, is just attitudes and gender attitudes and the like. If you look at patterns of time-use surveys in China, China and Korea actually really stand out as women, doing all the work work in the market and all the homework in the home. Now, we know around the world, women dominate the homework as well, but not to the extent they do in China and Korea. And surprise, surprise, China and Korea have amongst the lowest birth rates. So I think all these gender division of roles, gender attitudes and things play an important role. And you see that also partly in these kind of falling marriage rates and kind of increased reluctance of women in particular to marry, or certainly to marry as early as they used to. And that's much harder to shift, kind of cultural norms, social norms and stuff. The government's having campaigns on this, policies will help and they might help nudge things at the margin. But some of these fundamental things I think have to come from society itself. And that takes time. Yeah, it's hard to imagine the party's messaging on the value of female domesticity, winning hearts and minds. No, no, it doesn't appear to us. Especially the women in China are very well educated now and whatever, professional women, all kinds of opportunities that have opened up in recent years. And that's a big kind of market and social force to be pushing against with the string. You've mentioned a few times the interesting ways in which technology can intersect where the aging challenge, the ways in which robotics potentially could fill certain economic or social gaps. I'd love to hear just in a little more detail how the party might apply technology renovation to the aging challenge, especially as we see in the previews of the next five-year plan, a real, perhaps unsurprising, doubling down on she's idea of new quality productive forces, the idea of technology-enabled productivity, really delivering China from many of its more challenging economic and social challenges. What does that or what could that look like when applied to these demographic challenges? One clearly which I mentioned is the care. And now China has a very underdeveloped care system at the moment, this is outside health care more long-term aged care kind of stuff. Extremely underdeveloped, but they've also been extremely active on the policy side since about the early 2010s. And the emphasis is on home-based community-based care. They have this kind of approach of 97-3 that 90% of people should get home-based care, them to say community-based 3% residential. So they try to move away from residential care. To do that transition though, both because of workforce needs or shortages in the care sector and because of familial shrinking, one child to deal with informal care, they're trying to leverage a lot more online platforms in different ways and online tools, AI tools and other things. Now some of that's as simple as wearables and monitoring, there's no movement for a day that they're likely to have had a fall that can be followed up on the combination of tech and very nag-or-hood committee kind of follow-up by social workers and the like. Some of it is more advanced, kind of health monitoring and those kind of things. And some is the services themselves being on digital platforms and then education of people and digital literacy to access these. And some of it's quite fun, like the gamification of a lot of elderly stuff, which is quite interesting. But at the same time, there's a lot of discouragement of younger people spending all their time gaming. There's an increased encouragement of older people to get into gaming and playing on the computer kind of thing, which we know has mixed benefits in terms of its social impact. It connects you at one level, but it can disconnect you in other ways. So all the kind of care space I think is going to be major. The whole care robot kind of thing, yes, I mean, it's happening and you go, I've visited residential age care where you do have the care robots serving people their luncheon, things like that, whatever. But I mean, it may do things like cleaning your house and things like that, those basic functions. I think that's some way off as a mass adoption. I mean, it's not in production. China is a big producer of these kind of robots of all forms, but including care robots, social robots and whatever. It will come. I just think it'll take time to see it being in it. It's not cheap. And what about how technology could be applied to the question of the shrinking workforce? Well, I think there it's much more direct. And you see this in the intensity of automation and robot adoption, both at the aggregate level as workforce chair has been shrinking. I think certainly this is a case of what Asam Aghu would call induced technological change induced by or accelerated by the demographic. No doubt about that. Of course, China would have done it anyway because it wants to be at the frontier of tech and production, high end production, that kind of thing. But undoubtedly, there are also studies at the firm level which say firms with older workforces, and often they are SOEs, so they don't enter prices. Those with older workforces are often more innovative and that's partly because they've got the older workforces. So they're having to adapt more quickly as their workforces age. So it seems to be at the aggregate end of the firm level that this is happening. And I think that's very much a positive thing. What probably will be interesting to see, I think that's the kind of labor replacement of you like. I think the interesting forefront will be labor complementing and to what extent tech can complement labor as well as replace it. And we see from lots of other countries that tech investments and sometimes their process investment sometimes that the tech itself can really, really make a difference in productivity, particularly of older workers. When it comes to managing demographic change broadly, who are the key decision makers driving the party's approach? It's interesting. I mean, at the policy level, I think the central government and the party itself has been really active in setting. It's very Chinese thing. They set the directions, they set these menus, they kind of say what I won't say invoke because I think aging will be more than invoke or remain invoke for some time. But they set those. And so the central party I think very much drives that. But the implementation of it as in so, all areas of policy and particularly social policy in China, this subnational level is crucial. And that's still party channels and provincial parties and that kind of thing. But I think that subnational is really critical as to whether you end up with a policy and a funding pattern that is disequalizing or can help flatten inequality. We see, well, we think from quite a number of countries that when you have incomplete social security systems that age and can actually increase inequality in the society. And of course, the thing that mitigates that in rich countries is such security health systems and all like. In China, that's a kind of unfinished business as to how well it does that. We know in other Asian countries, we've looked at in our work in Vietnam and Malaysia and others that actually inequality increases amongst the older cohorts as they go. And for China to avoid that, it will need kind of the national level to be financing in a flattening or equalizing way. And the subnational naturally will fund to the extent they can and they're willing. But that will always introduce diversity and divergence in China if it's just that without central resources as well. Turning to China's foreign policy, how might demographic trends shape China's global ambitions its relations with neighbors and the global community now or further into the future? I think in a few ways. And it's nudging things that might otherwise happen anyway. But the first is that with a shrinking population, you see probably a reduction in domestic demand. And as a result, you need to export more as one of your strategies for that to keep your manufacturing sectors and like rolling. And of course, we already see concerns about China flooding foreign markets, pushback from the EU and some of their neighbors about this. So I think demographics will make that potential for that problem more acute. That's one. You could really see the demographic change exacerbating what is already one of the most extreme structural tensions. Exactly. I think, yeah, it certainly won't help. Let's put it that way. If you look at the impact on other countries, I think they run in two directions. One concern, one potentially positive. The first is that falling population will clearly have a reduction in demand for imports also into China. And particularly for a country like my own Australia, imports of raw materials that iron ore and coal and whatever. So raw materials for construction and that kind of thing. So I think for a country like Australia, this is something that's getting a lot of discussion. You know, are we going to fall off a cliff here because we've been so dependent on raw material exports to China to drive our growth? That that will all suddenly dry up. I don't think it'll suddenly dry up, but will it gradually evaporate? On the flip side, as for other countries, as China moves away from labor intensity of production, sectors that are relying on cheap labor, which increasingly no longer has and becomes more high and more robot and tech driven, that gives opportunities for countries that have labor-costed advantages, developing countries, to really step up and take some of those low-end production opportunities that China is doing. And we've seen that in countries like Vietnam, Bangladesh, and others, and I think that will be continued and accelerated by aging. And then the final thing, which is really more speculative, but if you look at those growth and fiscal impacts, if China's budget, as it seems, it will be, will be more squeezed over time by high-pension health care spending. Clearly, that reduces the fiscal space for other spending priorities. And they could be anything. They could be the BRI investments. They could be defense spending. That could be whatever. Now, politics will dominate what those priorities are rather than demographics, of course, and China's God-wild ambitions. But nonetheless, you only have so many dollars or yarns to spend. And if pensions are taking more and more of that, it might squeeze some of those other priorities, which are relevant to China's global presence. You've highlighted some ways in which China's demographic position is truly unique. And of course, some of that is predetermined by the legacy of the one child policy. But even today, I think you've mentioned that the fertility rate in China is quite low even by the standards of a globally aging population. So to wrap what's been, I think, a really compelling conversation, could you just help us understand the little more depth? To what degree is China's aging society representative of unique phenomena, questions that are specific to Chinese politics or culture or society? Or to what degree should we see these trends as part of a broader global story? Look, the direction and the trend of the global story is very common. I mean, all around the world fertility is falling. It's still very high in some parts of the world. But everywhere, everywhere it's falling, there's really almost no country where it's not. Globally, the fertility rate was 2.2 in 2023 and declining. So basically, the globe in the coming decade or more is going to hit replacement rate, just replacing itself and will probably continue to decline. It's a natural product of countries getting richer, people getting better, educated, particularly women getting better, educated, and becoming more urban. Those three things drive that. And most countries, thankfully, those directions are all more urban, more educated, and mostly richer. If you look at Asia in particular, and I know here is where I would say China is not unique to China, but it maybe is distinctive of East Asian culture. It's in a very low fertility neighborhood. Korea has 0.7 of a child per woman. If one can do that, Japan 1.2, Thailand is, I think, RAM 1.2. Even the Vietnam's and others that were quite high before a fall and below replacement. Singapore is one. So it's a really low fertility neighborhood as well. And I think there probably are distinctive things, perhaps, in Asian culture or East Asian cultures that feed into that. I'm not expert enough to talk through those, but it is distinctive. So the global trend is common, but the speed of that trend has been much quicker in East Asia and the degree to which it's progressed is also much more pronounced. But even in South Asia, take India, India is now below replacement rate. You don't think of India as below replacement rate, but it's already two or 1.9. So it's a global phenomenon. It's just a more acute phenomenon in this neighborhood. We'll have to wrap there. Thank you so much for coming on the show. Thank you, Happy Me, India. To learn more about what is going on in Chinese politics, we hope you will download and subscribe to Pecchengology. And as always, we'd love to hear what you thought of today's conversation as well as what issues you'd like. Technology to unpack in future episodes, you can send your ideas to Pecchengology at csias.org. And we will be back in your feed in two weeks. If you enjoyed this podcast, check out our larger suite of csias podcasts. 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