Authorities in China have finally responded to the nation’s demographic strains—on the state pension system and on the economy generally. They have raised statutory retirement ages. For years, such matters were far from the minds of leadership in Beijing. Because China could count on a huge flow of young people into the workforce, it could support one of the youngest retirement ages in the world. The flow of young workers provided productive strength and a torrent of funds for the nation’s pension system. Chinese society could easily afford to move workers along into retirement. But things have changed. Decades of the one-child policy have now left China with a paucity of young workers. No longer does the economy have access to so many young hands and minds or the funds they once poured into the state pension scheme. Beijing has had to respond.
Accordingly, the authorities have announced a jump in statutory retirement ages. Men, who previously could go onto the pension scheme at 60 years of age will now have to work until 63. For women in blue collar jobs, the retirement age will rise from 50 at present to 55. Women in other lines of work will see their statutory retirement age rise from 55 presently to 58. So as not to shock those just approaching the old statutory ages, the increase, the authorities have announced, will take place gradually over the next 15 years.
Demographic trends will no doubt require another such adjustment. Decades of the one-child policy have already left China with twice the number of retirees for each person of working age than was the case 25 years ago. The implicit pressure of this situation has already impelled the authorities in Beijing to loosen the old one-child rules, but as it has turned out, Chinese householders are no more interested in having more children than they were under the old law’s strictures. Matters will then likely become still more intense in coming years, demanding additional adjustments in the retirement age among other accommodations. Even had fertility rates risen with the loosening of the old law, it would be 15-20 years before rising birth rates could affect the labor situation and pension flows. As it is, no such relief is coming.
China’s planners have inadvertently compounded this situation. Some years ago, they decided that the unfolding Chinese economy would require vast numbers of engineering and science graduates. They pushed youth to go this route and financed it. For years, China graduated more engineers than just about the rest of the world combined. But as it has turned out, the economy has less need for all these graduates than the planners anticipated. Many young graduates cannot find work appropriate to their level of education and remain unemployed rather than take a menial job. At last measure, China’s youth unemployment rate stood at almost 19 percent. So, in addition to having fewer young workers than are needed, quite a large portion of the young population seems to have opted out of the active workforce even as China already faces a shortage of factory workers.
Beijing thus had little choice. Keeping working men and those women in white collar jobs at work for three additional years and women in blue collar jobs at work for an additional five years gives time to assemble enough young workers to take their place in the tax-paying, production part of China’s economy. It also means that existing workers will pay into the pension system and not draw on it for 3-5 more years than they would have under the old retirement laws. And since the new rules are not likely to change life expectancy, the new retirement rules will have those drawing on the system for 3-5 years less than they would have under the old system.
Given the still low fertility rates in China, this hike in the retirement age will not be the last. Likely even before the 15-year transition ends, Beijing will have to raise the statutory retirement ages again. To be sure, similar pressures exist in Japan, Europe, and the United States, but nowhere as acutely as in China.