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There has been increasing concern about the sustainability of China’s economic growth in recent years particularly in relation to the dramatic age structure and the rate at which the population is ageing. The increased number of aged people in China is bound to have certain financial and economic implications for the nation; this is due to the fact that the human populace is the most important element in the process of economic development and a nation’s financial features are bound to transform as a result of an aging populace. There are very significant connections that exist between an aging population and the macroeconomic situation of a nation. An increase in the life expectancy and age of the Chinese people implies that there will be subsequent alterations in the pension structures, retirement policies, labor efficacy, health schemes and capital markets. Although one of possible measures other nations may adopt is to increase their population size so as to replace the proportion of nation that is aging, it would be impractical for China to do so considering the fact that it is one of the most populous country in the world today. Under these circumstances, the policy emphasis will be on both the improvement in technology and education to mitigate the effects.

This study aims to assess the government’s effort in ameliorating the negative economic effects of  an aging population, and how China can explore the Second demographic dividend which is also known as the transition from a labor-intensive economy to a capital-intensive economy by improving its productivity levels, a promising avenue for China to ensure continued growth despite its ageing population. Hu-wen administration place great emphasis on why Science and education can bring about macroeconomic transition which is evident during China’s Fourth National conference in Beijing on January 09, 2006 where the Hu-wen administration places great emphasis on “rejuvenating the nation with science, technology and education” during the President Hu Jintao's keynote speech.

Literature Review

For a long period, China's abundant and inexpensive labor force played a positive role in helping domestic enterprises gain a sharp edge over foreign counterparts in manufacturing inexpensive and labor-intensive products for domestic and overseas markets and enjoy a comparatively long period of growth. However, with the transformation of its population structure, the country's traditional economic development model has come under severe pressure which would affect the sustainability of China’s economic growth. By 2030, after this working sector has aged, there will be 2 working age people for every citizen over 60 compared to 6 for every 60-and-up 12 years ago. The consequences of the aging population  is already starting to kickoff as further substantiated by Ma Jiantang, head of the National Bureau of Statistics, who stated that the rising elderly population factored heavily in China's decision to lower its GDP growth goal to 7.5% last week, the lowest in seven years.   Hence it is important to bring this issue to light and actions should be taken to address this issue so that it would prevent the current population from experiencing a phenomenon where they “grow old before getting rich.”

Scholars such as Judith Banister, David E. Bloom, and Larry Rosenberg have recognized the relationship on how aging population can result in detrimental impact of China’s economic growth in their studies known as “Population Aging and Economic Growth in China”. Chinese articles have also pointed out possible measures the Chinese government can undertake to address the issue of aging population. However, they have failed to contextualize and give suggestions that are relevant to the Chinese background. Given that their suggestions are more relevant to the western economies. Having said so, this thesis aims to fill up the gap on how effective has existing government policies been at mitigating the problem of aging population with relevance to the nature of the Chinese economy since Hu Jintao took power in 2002.The effectiveness of the policies would be looking at key trends since 2002 in terms on how China may try to respond by moving more into electronics and other medium-tech industries, by increasing investment in China’s labor force and management cadre before such a transformation can be successful.

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A)   Utilizing the usage of education to facilitate in China’s transition from a labor intensive to a capital intensive economy

Chinese academics such as Jing, Qiu has proposed that it would be more practical for the Chinese government to adopt education as a strategy as China moves towards a greying population. This has been further supported by Western scholars such as Tam Bang Vu and Eric Iksoon from the University of Hawaii Hilo and Belton M. Fleisher, Yifan Hu, Haizheng Li Seonghoon Kim who has also agreed that education should be the new approach for China to switch from a labor-intensive economy to a capital intensive economy which is an alternative to the solution proposed by the orthodox approaches mentioned in the Literature review above. Hence, this further strengthens the government’s rationale for using education as a policy as it does not only take into account the Chinese appraisal but the western perspective as well.

An abundant labor supply, combined with relatively small shares of younger and older dependents, not only helped make China become the world’s factory at the turn of the twenty first century, but also contributed to increasing output per capita and thus the standard of living. Such a comparative advantage is transitory and will soon be exhausted .China will soon enter a long period of decline in labor supply which would erode the competitiveness of low-end, labor-intensive manufacturing in the PRC, which, in turn, will reduce exports and economic growth. Under these circumstances, in order to sustain china’s economic growth, it is essential to transform the current generation of population into a well-educated, productive labor force before they enter the aging population. By doing so, China is able to expand exports from more capital and human capital intensive industries to ensure a strong second demographic dividend is well within reach. Failure to do so would fuel worries over how long the country will be able to sustain its high economic growth, as fewer young people are available to work in factories and build the roads that transformed it into the world's second biggest economy after the United States.

The challenge of mitigating the effects of an aging population is further exacerbated by the entrance examination, also known as gaokao, which has hardly undergone much reform since its heyday. Nine million hopeful students pit themselves against each other for this crucial test that holds the key to a student’s entire future.  Critics have long hammered this examination for focusing on memorizing and logical ability, which stifles creativity and imagination, leaving little room for challenging the norm. Hence, China’s workforce is brilliant at imitation, but not innovation. (Sunday Telegraph, Xinran) and this makes it difficult for China to remain competitive with rich economies that are able to produce more innovative and technologically advanced products.

From the CCP’S perspective, one measure that is relevant to the securing of economic development in light of an aging population is the focus of vocational education. The reformed regular institutions is offering 2 to 3-year higher education with the emphasis on training practice-oriented talents, namely high-level professional technical talents, for the forefront of production. As the countries industries are shifting from low-skilled, labor intensive to a more capital and skilled intensive pattern, technical and vocational education and training can fill the gap. On 8th March 2012, the Education Ministry has unveiled plans to introduce a newly instituted evaluations and supervision system (BBC Monitoring), which involves stricter monitoring of the students. By doing so, the government hopes to train the workers to be more capable in operating machineries which produces capital-intensive products so that they would be able to compensate for the dwindling working population due to the aging population in China.

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However, the effectiveness of this measure is limited as population aging, especially in the economically advanced coastal areas of China, has intensified the problem of insufficient supply of professionals and technicians in China. According to the 2008 labor market statistics of 113 cities show, demand is higher than supply in almost all technical and skilled categories judging by the job opening to application ratio:  for senior technicians at 2.4:1, technicians at 2.1:1, senior skilled workers at 1.8:1, intermediate skilled workers at 1.5:1, which reflected the insufficient supply of technology-based talents in the labor force market (Yang, 2008). The shortage of qualified workers has hindered development because the new skills demanded to meet the needs of economic modernization are scarce.

This is further substantiated by the McKinsey study (2008) reported that 44 percent of executives at Chinese companies said insufficient talent was the biggest barrier to their global ambitions.  Having said so, to further increase the pool, the WWP, the world’s largest school of Marketing and Communications has launched a three-year program in china aimed at helping China to develop a professional, and creatively-talented workforce in this sector. Hence, china would be able to farm innovation and creative talent in business which would give China the ability meet industrial developments and corporate demands in the global economy. This measure have proven to be effective as In the Global Innovation Efficiency Index of 2012, China lead the top 10 league of countries.  Under these circumstances, China is on the right track to promote innovation which is critical to the debate on spurring sustainable economic growth in light of its aging population.

Another obstacle faced by china during its transition is the trend that the weakened education system especially for the rural areas has taken a toll on China’s economy, with only 40% of the country’s poor and rural children now receiving formal high school education. In 2007, The Development Research Centre under the State Council of the P. R. of China made an investigation of 2749 administrative villages all over China, finding that there were no more laborers in their young and robust years to be transferred to the urban areas in almost three fourths of the villages investigated (Ding, 2007,b) .The inadequate educated labor pool would make it difficult for China to embedded creativity and innovation in their educational paradigm rendering it ineffective to sustain the shift. In the absence of determined actions to increase mobility and upgrade skills, labor shortages in the capital intensive industry, will emerge regardless of large surpluses in rural areas. This would in turn impede the government’s effort to reduce labor supply shortages resulting in a situation where aging will ultimately constraint economic growth.

This major challenge has been targeted by several policies that have been spanned out since the Hu Wen Administration.  .One of these policies targets the banning of migrant children from popular migrant magnets such as Shanghai and Beijing, so as to protect the interest of the locals. Despite being a large country, the various provinces are often still competitive, and the rural areas tend to lose out.  Following the hasty strings of closures and mergers of rural schools, farmers and parents from those areas have to pay more now for their children’s education, and children have to travel further, risking their safety. This makes education opportunities for migrant workers even more disruptive and challenging. China’s education authorities have realized its negative impacts, and have slowed down the process, choosing to evaluate each school stringently before making a decision. (BBC Monitoring).By increasing the number level of education of the people in the rural areas, the government would be able to maximize precious human resources needed for the transformation to a knowledge-based economy. This is done by spurring innovation and R&D using their knowledgeable workforce so that Chinese firms can produce higher-value products of their own rather than relying on their “screwdriver” industry.  This would allow China to answer the challenges of population aging of labor shortages.

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Even though the government has managed to reduce the number of children dropping out of school in the rural areas, the glass ceiling for university-educated migrant workers from Chinese villages still exists. This has been justified by a recent Peking University study which cited that graduates who grew up in the countryside lack the social networks, or guanxi, the all-important factor for success in the Chinese society. Once they are midway on the career ladder, they encounter forces arrayed their bid for further upward mobility. Hence, they are unlikely able to replace those workers who grew up in the city, undermining the government’s effort to fill up the gap for aging labor workers in the urban areas.

B)   Technology

China prides itself upon being the world’s low-cost manufacturer, but that has also created the problem of exhausted workers. The manufacturing industry has also reach the end of its development due to a weak investment environment and excess capacity.  On December 1st, it was reported that China’s manufacturing sector contracted for the first time in almost three years. As the chart below shows, after a sharp downturn then upwards spike in the course of 2008, the rate of expansion of factory output in China has been declining steadily.

With this issue in mind, the introduction of a stronghold on industrial technology paints a promising future for its unsustainable manufacturing sector and in 2001; China has witnessed rapid growth in its high-tech industry and in such a special period, the development of China’s high-tech industry is significantly distinct from that of developed countries. The term “Made in China” has shifted beyond toys and garments, to consumer electronics and products and high-tech gadgets.  However, there is a rising trend of the lack of brand power and innovation present in China’s economy. China has the ability to quickly mobilize resources funded by rapid economic growth, and is stronger in hardware development than software innovation and is better in quantity development than quality.  It is expected to produce low-end products over the coming years that could dramatically change markets in communications, energy and transport, allowing it to sustain its economic growth in light of its aging population.

Over the years, even though China has shifted from labor intensive to information technology, it is still unable to develop a strong brand name that boosts quality over quantity. These programs have also come under heavy criticism from scientists and some technocrats for problems they allege are slowing down China’s pace of innovation. With these in mind, it is evident that China is still plagued by its age-old habit of reproducing more than creating. To make things worse, products that were produced do not guarantee quality and integrated advanced technology as compared to their competitor’s goods, thus creating an impression of an inferior. Having said so, this creates an obstacle for china to transform its current economic growth model from a global center of low-tech manufacturing to a major center of innovation and a global innovation leader to cushion its problem of an aging population. However, despite the current  obstacles posed to the Chinese government in view of its effort to boost China’s high tech industry innovation capability, the government has effectively manage to tackle these challenges which mitigates the negative impact of an Aging population on the labor market (i.e., shrinking labor force and declining productivity)

China’s leading officials are deeply committed to technological modernization and have provided sustained attention and funding to address the challenges they face. This is especially true when China’s research and development (R&D) spending reached $141 billion in 2010 (Fig.13.1) – according to purchasing power parity (PPP) estimates—more than twelve percent of the global total. China is on pace to surpass Japan in 2011 and become the largest source of R&D spending in the world after the United States.

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Ever since Hu Jintao has taken his place in the Politburo, he continued implementing a variety of other national programs in support of state-led science and technology development.  These include the Spark Program for rural technological development, the Torch Program to facilitate the commercialization of new technologies through the establishment of special high technology zones and incubators, the Key Laboratories Program, Engineering Research Centers, and the “973” Program for the support of basic research.  (Fig. 5) These R&D programs represent China’s main instruments of science policy, and have enabled some of China's most ambitious and cutting-edge technological developments which could in turn, help to increase the productivity of the labor force (Fig.13.4), reducing China’s reliance on a labor-intensive economy to drive its growth. The success in government’s efforts is evident in 2010, where the total output value of China’s high-tech industry reached RMB7.47 trillion, accounting for 10.56 per cent of the total output value of the large and medium-sized enterprises in that year.  China has become the world’s major manufacturing base for high-tech products, with an important role in the international high-tech production chain. Hence, Chinese government’s efforts in improving the as a leading policy alternative to the possible negative impact of population aging on economic growth productivity of the labor force through increased investment in human capital and technology has successfully emerged.

Conclusion

One of the limitations when writing this thesis statement is to source for evidence justifying the effectiveness of the Chinese government’s policies in addressing the aging population issue. This is because China’s population structure has just transited into a greying population in the recent decades. Unlike countries like Japan ,Europe and other developed countries who has been facing this problem for a long time, it is too short a time to examine to outcome of the Chinese government’s policies .Nonetheless, this problem has been overcome by analyzing current trends starting from the time period the respective policy has been implemented to assess whether there has been progress in terms of the objectives the government hopes to achieve so as to prepare the existing population such demographic transition. More importantly, the main aim of the government is the implementation of these policies to help China sustain its economic growth in light of its aging population.

In summary, from the current trends, the Chinese government has been relatively more successful in upgrading the level of technology in China so as to increase the productivity of its working population allowing the government to cushion the effects of a dwindling active working population. Conversely, its attempt to improve the education level of the population has witnessed a less successful outcome that has failed to meet the government’s aim. The failure is not only stemmed from the lack of quality of education provided to the rural people. More importantly, the main cause of the lack in success is due to the government’s failure to ensure a widespread equal distribution of educational opportunities to the people so that the government can fully utilize every single resource that would play a necessary role in fuelling China’s economic development, in light of an aging population transition from a labor-intensive economy to a capital-intensive economy by improving its productivity levels, a promising avenue for China to ensure continued growth despite its ageing population .The assessment of the effectiveness of the policies implemented by the Chinese government is important for the government to decide whether he should continue implementing existing policies or complement it with other policies. By adopting such multi-pronged approach and consistently assessing existing policies allows the government to remain relevant in light of the rapid demographic changes occurring in China.

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