China’s demographic landscape is undergoing a profound transformation, with significant implications not only for its own future but for the global economy and geopolitical dynamics as well. This shift, marked by a dramatic decline in birth rates and an aging population, poses challenges and opportunities for China and countries worldwide.

In 1987, China witnessed over 25 million live births, a figure that dramatically decreased to 17.9 million by 2016 and further plunged to 9 million in 2023. This trend signals a seismic shift in China’s demographic structure, with far-reaching consequences. The decline in the number of school-age children, for example, is anticipated to lead to a significant reduction in the number of teachers required, dropping by an estimated 1.9 million by 2035. While this may reduce education costs for local governments, it is juxtaposed with the growing financial demands of an expanding elderly population.

The aging population is expected to increase the burden on pensions, healthcare, and other elderly services. China’s solution to this challenge includes plans to raise the retirement age gradually from its current relatively low thresholds. This adjustment could potentially alleviate some of the pressure on the pension system and contribute positively to the economy. Nevertheless, the rapid increase in the population over 65 years of age—from 15.4% in 2023 to a projected 25.1% in 2035—highlights the urgency of implementing such measures.

The demographic changes also have profound implications for China’s economy. The decline in the working-age population threatens to slow economic growth unless there is a compensatory increase in labor productivity. Historically, rural-urban migration and foreign investment have driven productivity gains, but these factors are now diminishing. Moreover, the shift towards the state sector, traditionally associated with lower productivity growth, could further strain economic expansion.

Conversely, the shrinking labour force may lead to labour shortages, pushing up wages and incentivizing investments in labour-saving technologies, potentially boosting productivity in the long term.

Looking far into the future, projections suggest that China’s population could shrink to 525 million by 2100, with the working-age population decreasing by 80%. Such a scenario, unprecedented in human history, underscores the long-term challenges China faces in sustaining its population and economic vitality.

China’s demographic shift is likely to affect its position on the global stage, potentially slowing its path to becoming the world’s largest economy and affecting its geopolitical influence. Meanwhile, India’s contrasting demographic trajectory, characterized by a growing working-age population and rapid economic growth, positions it as a rising global power, attracting attention from global companies and investors shifting focus from China.

India’s demographic advantage, coupled with significant investments in education, infrastructure, and technology, sets the stage for sustained economic growth. The government’s efforts to improve productivity through various reforms and investments signal a bright future for India’s economy, potentially enhancing its global influence and offering an alternative to China as a major economic powerhouse.

In the United States, recent economic indicators have sparked debate. While inflation remains a concern, with certain sectors like housing contributing significantly to price increases, there are signs that inflationary pressures may ease. Meanwhile, a decline in retail sales in January, despite strong employment growth and rising consumer confidence, raises questions about the underlying health of the US economy and consumer spending patterns.

The future of interest rates remains a critical question for economies worldwide. The debate over the neutral interest rate (R*)—the rate that neither stimulates nor weakens the economy—continues, influenced by factors such as demographics, productivity growth, and government borrowing. The decisions made by central banks in setting interest rates will be crucial in navigating the complex economic landscape ahead.

As China grapples with its demographic challenges, its strategies and policies will have significant implications for its economic trajectory and global influence. Meanwhile, India’s demographic dividend presents an opportunity for sustained growth and increased global prominence. In the US, economic indicators and policy decisions will continue to shape the domestic and global economic outlook. Together, these developments underscore the interconnectedness of global demographics, economics, and policy, highlighting the importance of strategic planning and international cooperation in addressing the challenges and opportunities of the 21st century.