China's population tipping point threatens growth

A series of special reports in the London Financial Times suggests China's migrant miracle has ended, impacting on the country's growth prospects.

travelling to work in Beijing, China
An ageing population, the effect of China's one-child policy and a dwindling supply of migrant workers means China has reached its "Lewis Turning Point": the point at which the pool of surplus rural labour that has supplied the industrial and manufacturing sector without wage inflation for the past few decades dries up and pay rises rapidly.

Coined by Nobel prize-winning economist Arthur Lewis, the Lewis inflection point describes the likely impact of demographic change on China's economic miracle, which has seen GDP rise rapidly over the last 30 years thanks in part to mass rural to urban migration, and suggests China is not immune from global megatrends that are seeing labour and skills shortages in emerged economies.

Already, Cai Fang, director of the population and labour economics institute at the Chinese Academy of Social Sciences (CASS), has estimated that China's potential gross domestic product (GDP) growth rate will be hit, with a shrinking labour force one of the main causes, the FT reports.

The working-age share of China's population is set to peak this year at 72 per cent then fall rapidly. The growth in migrant workers also declined to just 1.3 per cent last year from 4 per cent between 2005-10. Meanwhile, recent CASS potential GDP growth estimates for 2016-2020 show a further decline to 6.1 per cent, down from 7.2 per cent in 2011-2015, and 9.8 per cent in 1995-2009.

China's household registration system,"hukou", where social welfare benefits are paid in the local area, currently discourages families to follow workers leaving for jobs in city. As well as exacerbating labour pool shortages, it also hampers productivity, as workers often return home at the point they have acquired more valuable transferable expertise and knowledge, the FT reports.

The Chinese government has signalled a desire to begin dismantling the hukou system, but this time consuming and complex process, involving local governments and significant funding issues, is unlikely to change in the short term.

Economists and government advisers suggest that economy-wide rebalancing is likely to happen naturally during an extended turning period. Wages will rise, reducing profits and investment, with consumer spending also increasing, leading to the emergence and dominance of sectors like healthcare, media, financial services and tourism.

From a global mobility perspective, this refocusing suggests commensurate new opportunities, and challenges, for global and local companies in the region. As David Sapsted reported earlier this year, lower growth, higher costs and "increasing anti-foreign sentiment" are some of the reasons given for corporations recalling relocated employees from China. UniGroup Relocation reported moving out of China twice as many expats as it moved in during 2014, with Malaysia gaining appeal as companies seek to rebase their costs.

Read more about the latest in global mobility in Asia in the upcoming summer issue of Re:locate magazine, published in June. For more Re:locate news and features on China, please click here.

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