Demographic Perspective of China's Economic Development

Fang Cai, Cai Fang

• Publisher: Taylor & Francis
• Year: 2020
• Print ISBN: 9780367471033
• eBook ISBN: 9781000052848
• Edition: 1
• Topic: Economics
• Subtopic: Comparative Economics
• Index: Economics

China is historically famous for its high demographic dividend and its huge working population, and this has driven tremendous economic growth over the past few decades. However, that population has begun to shrink and the Lewis turning point whereby surplus rural population has been absorbed into manufacturing is also approaching, leading to great change in the Chinese labor market. Will this negatively affect China's economic growth? Can the "Middle-Income Trap" be avoided? What reforms should be made on the labor supply side? This book tackles these key questions.

This book is a collection of 14 papers presenting the author's observations, analysis, and opinions of China's long-term economic development from the demographic perspective, while analysing real economic problems from the past and including policy recommendations. It provides a critical reference for scholars and students interested in Chinese economic development and demographic perspectives on economic development.

Part 1

New stage of demographic transition

1Demographic transition, demographic dividend, and the Lewis turning point in China

1.1 Introduction

One of the hot topics that inspire debates among scholars, policy researchers, and even policy-makers is whether Chinese economic growth is losing its source and momentum from demographic dividends. Another related topic is whether China will reach its Lewis turning point—namely, labor supply will no longer be unlimited. In a research paper, Cai and Wang (2005) estimated that the decline in the population dependence ratio, as a proxy for demographic dividend, contributed 26.8 percent to per capita GDP growth during 1982 to 2000, and warned that such a demographic dividend would disappear after 2013 when the dependence ratio would stop decreasing and begin increasing. By examining changes in population age structure, labor demand trends, widespread labor shortages, and wage rises of ordinary workers, Cai (2008a, 2008b) asserts that the Lewis turning point has indeed come, and points out its policy implications in terms of growth pattern transformation, income distribution trends, labor market institutional construction, and human capital accumulation.

While some researchers and even some policy documents support and cite the conclusion about the arrival of the Lewis turning point, others strongly disagree. In previous replies, Cai (2008a) tried to provide a wide range of evidence to defend his arguments. It turns out that people come out with conflicting opinions about economic reality, and explain the same phenomenon in different ways. Many still firmly hold to the conventional wisdom that there is a massive and increasing working-age population and thus endless surplus labor force in rural areas, and that this is an unchangeable characteristic of China. Propositions which assert the possibility of labor shortage or disappearance of the surplus labor force in agriculture—namely that the Lewis turning point is arriving—are not widely agreed.¹ Specifically, all skeptical and critical comments on the judgment about an ongoing Lewis turning point, which result from a static understanding of population and labor force in China, are generally puzzled by the Chinese statistics. In what follows, I unveil some aspects of such statistical puzzles.

First, given that the official survey on utilization of the agricultural workforce is unable to reflect the fast-changing reality of agricultural production, some scholars are unaware of the changed situation, while others who have tried to understand the statistics are actually trapped in “the tyranny of numbers”, as was Young (1994) when he tried to challenge the “East Asian miracle”. Either case makes any endeavor of econometric analysis hostage to the data. The point is that economic reform in China has been too fast for the statistical system to catch up (Ravallion and Chen, 1999). One of the many examples that cause confusion concerns the accurate numbers of the agricultural workforce actually used. In 2008, the reported total labor force engaged in agriculture was 307 million, accounting for 39.6 percent of the country’s total employment, and the figure provided by the 2008 Agricultural Census was even higher. However, the actual input of labor in agricultural production, calculated based on agricultural costs survey data, turns out to be much less than any published aggregated figures (Cai and Wang, 2008). Taking into consideration the changing trend of working-age population in rural areas, the updated situation of labor migration from rural to urban sectors, and the extent to which agriculture is mechanized, one must conclude that the actually used workforce in agricultural production is much less than what official statistical publications declare. Therefore, the declaration that there is large amount of surplus labor to be shifted from agriculture (e.g., Lau, 2010a) and the econometric estimation of marginal productivity of labor in agriculture (e.g., Minami and Ma, 2009), which are both based on the aggregated dataset, tend to overestimate the degree of labor surplus in agriculture and conclude that the Lewis turning point has not come to China.

Second, scholars have difficulties in interpreting statistics on the labor market and rural and urban employment, and thus they often elicit conclusions that deviate from reality. As the result of sectoral changes and increasing diversification of ownership, especially after the labor market shock in the late 1990s, multifaceted sectors have appeared to absorb labor into urban areas, contrary to the pre-reform period when state and collective sectors dominated employment absorption. Among those sectors of employment, large-scale informal employment, as the byproduct of reemployment of the laid-off and of diversity of employment, is new to China. Meanwhile, massive numbers of rural laborers have transformed their jobs from agricultural to non-agricultural sectors, amounting to 240 million, of which 145 million migrated into cities. In routine statistics, neither informal employment of urban residents nor employment of migrant workers in urban sectors has been authoritatively reported, except for estimated figures of migrant workers based on sampling surveys and aggregated estimates of informally employed urban residents under certain assumptions (Cai, 2004). We can view the difference between the number of total employment based on the unit reporting system and the number of employment based on the household survey as a proxy for urban informal employment, which amounts to 95.1 million and accounts for 31.5 percent of total urban employment in 2008. It is, however, useless if one wants to do any statistical analysis on structural characteristics of total employment, because of lack of disaggregated data on it. Moreover, the statistical authority has so far not promulgated an alternative surveyed unemployment rate data series to the discredited registered unemployment rate, and that leads scholars to do various guesstimates on the unemployment rate. Based on incomplete employment data and unfounded guesstimates, Chinese and international scholars have often educed conclusions such as zero growth of employment and a high and increasing unemployment rate (Rawski, 2001; Solinger, 2001; Ru et al., 2008, p. 22) and doubt the authenticity of the widespread labor shortage.

Third, there is no officially published systematic data and up to date information on the status of demographic change and population dynamics. While various rounds of national population censuses provide information about population changes, due to lack of consensus on some important parameters of China’s demographics such as the actual total fertility rate (TFR),² no authoritative projections of population change, inc...

Table of contents

• Cover
• Half Title
• Series Information
• Title Page
• Copyright Page
• Contents
• Figures
• Tables
• Part 1 New stage of demographic transition
• Part 2 Avoiding the middle-income trap
• Part 3 Supply-side structural reform
• Index