Economic trends

China’s new demographic gold mine

China has more college graduates than ever – and it’s spelling big change for the country’s growth model

A new breed of workers is emerging in China, and this time it’s all about quality – not quantity.

For decades, China’s economic growth has been underpinned by a ‘demographic dividend’ in the form of an ample supply of labour. Today, this growth model is very much under threat. Wages are rising and there are labour shortages, largely the result of China’s decades-long one-child policy.

Many countries have experienced declining birth rates as their economies have developed, but the speed and magnitude of China’s demographic transition are unprecedented in world history. The UK took about 200 years to complete its demographic transition to low birth rates, and the US took 140 years; in contrast, China’s transition took only about 30-40 years.

China has had the biggest surge in college-educated people in human history

When China announced it was ending its one-child policy last year, in response to an ageing population, it was headline news around the world. But the truth is its ageing population problem already poses a threat to future growth and we think, relaxing the one-child policy is unlikely to have much impact on reversing the trend. Instead, future growth in China is likely to come from the educated population currently emerging.

China has had the biggest surge in college or university-educated people in human history. In 2010 only 3.9 per cent of its working population had a degree, compared with an average of 29.6 per cent in OECD countries, according to our analysis. By 2015, the number of higher education graduates reached 7 million, almost eight times the figure in 1999, and up from 1 million in 2000.

Moving to high-end manufacturing

By 2030, we estimate that more than a quarter (27 per cent) of China’s workforce will have a college degree, similar to the level in Germany, France and the UK. With the world’s biggest pool of educated labour – around 220 million by 2030 – China will be well positioned to compete in high-end manufacturing (such as aerospace and new energy) and modern services (such as finance), opening up vast potential for future growth.

China’s new demographic gold mine chart

China’s producing more college graduates than ever

An industrial upgrade is urgently needed to provide sufficient job opportunities

The surge in supply of skilled labour should support future growth in China. Standing in the way, however, are the country’s socioeconomic structures, which were designed to suit China’s old demographic profile.

An industrial upgrade is urgently needed to provide the fast-growing population of skilled workers with sufficient job opportunities. According to a study by Peking University, 49 per cent of college graduates in 2014 chose working in the government sector as their first option, partly because of the lack of opportunities in the private sector. A disproportionate number of China’s manufacturing firms still use old technologies suited to unskilled workers.

New growth model

Adopting skill-intensive technologies would allow companies to take advantage of the increasingly educated workforce and move to higher-end manufacturing, which generates wider profit margins and, importantly, jobs for the increasing number of new graduates.

There are widespread doubts about whether China can maintain high growth in the coming decades, especially against the backdrop of extreme bearishness globally. China is becoming less competitive in low-skilled manufacturing, but we think a growth model of higher-end manufacturing will give the country its competitive edge in the next decade. And when you think about what China achieved with its unskilled workforce, imagine what its skilled workforce will deliver.

 

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