China's Economy May Never Overtake the US, Demographer Argues

China's economic trajectory, once projected to surpass that of the United States, may never reach that milestone due to the lingering effects of its decades-old One Child Policy and potentially inaccurate population data, a demographer suggests.

Yi Fuxian, a demographer at the University of Wisconsin-Madison, contends that China's economy is unlikely to outgrow the U.S. economy until the 2040s, and even that projection is uncertain. He points to the One Child Policy, implemented in 1979, as a primary driver of this economic slowdown. The policy, designed to curb population growth, has resulted in plummeting birth rates and an aging population, which he argues are detrimental to sustained economic expansion.

Official Chinese statistics have systematically overstated birth rates and total population figures for decades, Yi stated. While official reports claim a population exceeding 1.4 billion, Yi calculates the true figure in 2020 was likely below 1.28 billion, approximately 130 million fewer than reported. He asserts that India surpassed China as the world's most populous nation years earlier than officially recognized, and China's population began shrinking in 2018, four years before a Goldman Sachs estimate and over a decade earlier than official projections.

The policy, which limited most families to one child, was relaxed to allow two children in 2016 and three children in 2021. However, China's total fertility rate remains among the lowest globally, estimated by Yi to be around 0.8 births per woman, well below the 2.1 replacement level. In the past year, China recorded 8 million live births, compared to 3.6 million in the much smaller United States.

Yi also attributes some of China's economic challenges to reforms enacted by former Premier Zhu Rongji in the 1990s. These reforms, coupled with strict birth restrictions and fiscal centralization, significantly reduced household disposable income in China to roughly 42-44% of GDP. In contrast, household disposable income in the U.S. exceeds 70% of GDP.

He argues that a smaller population, particularly the absence of several generations of children, has crippled domestic consumption. To compensate, China has relied heavily on export manufacturing, a real estate bubble, and state-subsidized industrial overcapacity. Yi suggests these strategies, while perhaps benefiting short-term growth and enabling the export of cheap goods to the U.S., have ultimately harmed China's economy and population.

China is now one of the world's oldest countries, facing a shrinking labor pool and an aging demographic. The median age is projected to reach 59 by 2050, compared to 44 in the U.S. This demographic shift leads Yi to predict that China will lag behind the U.S. in demographic and growth metrics between 2029 and 2035.

Yi cautions against the idea that this demographic shift could lead to political liberalization. He suggests that an aging population, focused on stability and pensions, is less likely to drive political activism. With only 16% of China's population aged 15 to 29, down from 31% in 1989, he believes the country may favor a strongman leader to maintain social order.