Why China Is Worried About Grandma

China just announced a rising retirement age. At 60 for men, it will gradually increase to 63 between 2025 and 2040. Meanwhile, the retirement age for women in blue collar jobs will go up to 55 from 50. For women in white collar jobs, the increase moves from 55 to 58.

Yet still, looking at 45 countries, we can see that China’s retirement age remains relatively low:

China’s New Retirement Age

Like many countries, China has an aging problem.

To take care of their elderly, they need more babies that become the workers that support a dependent population. Shown by the following population pyramid, China needs more of those babies. Since 2012 their working age population has gone down each year while the proportion of people over 60 is at 21%. Their expected lifespan is now approximately 78 years:

Two problems are the expense and the care. China’s basic pension system is funded by the state. But then it also has an employer and individual “pillar”. Neither is ideal. The state part is under financial pressure while the corporate and individual pieces are “underdeveloped.” They worry that the state funding could run out by 2035. Then, as for care, more older people, especially women, will experience severe activity limitations. In addition, with older people remaining in the labor force, younger workers worry about job competition.

Our Bottom Line: Dependency Ratios

As economists, we use dependency ratios to quantify the impact of an aging population.

When we calculate an old-age dependency ratio, the number of people aged 65 and more is our numerator while the working age population aged 20 to 64 is our denominator. Consequently, smaller ratios display less of a problem.

Stated slightly differently, there were 10 working age Chinese supporting one retiree in 2002. In 2021 the number descended to five workers. Continuing to plunge, the projection is 4 workers during 2030 and 2 in 2050 that support one retiree.

China’s dependency ratios:

The world’s dependency ratios:

At this point, we can say the news is good and bad. Yes, we are living longer and healthier. However, unless they have sufficient economic growth, China’s labor force will have to transfer more of their earnings to those who will be dependent for many years.

Returning to our title, they will have Grandma to worry about.

My sources and more: Thanks to my BBC World Business Report podcast for alerting me to China’s retirement age change. From there, I found more detail in this NY Times article, Reuters, and from Scientific American. Then finally, the IMF and the Visual Capitalist produced the ideal complements.