​The Role and Impact of Population Growth in China’s Development

Posted: September 07, 2016

China with a population of approximately 1.32 billion people is one of the most populated nations in the world. Perkins (345) asserts that population growth may have numerous effects on a country’s economic extension and performance. A high population always provides a nation with a large and affordable labor force, while at the same time being a basis for a wide market for its products. When studying the role of population growth to a country’s economic growth, Wang Feng’s ideas can be considered. The first idea is the presence of some production factor like land which is limited in supply, meaning all other factors are also limited in returns. Secondly, the population growth rate has a positive consequence on the standard of living (Barlow 145). A survey which was carried out by the Asian Development Bank in 2002 outlined that the annual economic growth rate for China stood at 8% leading to a general rise in the living standards of the Chinese population.

China’s shift from agricultural production to the concentration of modernized industries in the service and manufacturing sector has negated the need to have large sized families (Chow 822). In fact, China is currently involved in the service industry and in a majority manufacturing economy which is able to continue increasing their per capita income. The population control policy of “one-child” implemented since 1978 in China means that the labor force in China will rise to peak, then start shrinking, slowing the economic growth in China. In spite of the projected negative consequence of the “one-child” policy, the policy has worked to equally benefit China (Perkins 351). The policy has ensured investment in education is properly done by building a future workforce that is more educated. The huge population has also forced a large number of the Chinese people to invest in other countries as they repatriate profits back to their country adding on to their GDP. 

On the other hand, if the population growth rate levels are not managed well, they are likely to lead a country into an economic crisis according to Wang Feng.  According to him, China’s demographic changes are an indicator of the country’s future economic growth (Aziz and Cui 181). Some of the changes that are likely to be experienced in the near future include young labor supply decline, care for the elderly financial burden and an aging society. Some of these impacts of the “one-child” policy have started being felt posing a major challenge to the country’s future economy. Fertility rates can be linked to certain economic factors such as increased education levels and advances in technology. Unlike in the developing countries where children are needed to perform agricultural duties, China’s technological progress has allowed it to maintain its population growth in a better way (Perkins 355). It may be very difficult for a country to maintain the standards of living of its people high, without such technological advancements.

Collective era and Reform era in regard to human development and economic development

During the collective era particularly in the 1950’s, China focused on a command economy that was centrally planned. The household agriculture was abolished and the collective agriculture was encouraged (Perkins 365). This type of agriculture was first referred to as “agricultural producer cooperatives” and was later called “rural people’s Communes”. The planning state commission developed a plan of allocation industrial inputs and outputs using administrative means. Through this industry market forces and large-scale commerce were eliminated. Unlike in other economies where the labor market allocated jobs to the skilled workers, here the government did the job allocation and setting of wages. There was rationalization of consumer goods and farmers’ prices were not a major determinant of agricultural products procurement by the government (Aziz and Cui 181). Every action taken by the government ensured the welfare of all so that the country can move forward as one entity. Income was shared even to the less fortunate promoting human development, but the country suffered major drawbacks in its economic growth.       

This rigid, highly centralized system, with no market just like that of the Soviet Union, was applied in an inappropriate context (Amiti and Freund 56). Even though the overall goal of human development was being achieved, it was not sufficient to take the country through economic challenges. The economy of the country went down and its leadership had to come up with immediate solutions to contain the situation. One notable instance during this time, which really affected the country, was the famine of 1959- 1961, where almost 30 million people lost their lives. Another setback to the economy was experienced during the Cultural Revolution period of 1966- 1976. Barlow (151) concurs that here focus was shifted towards how institution transformed into the nonmarket economy with the aim of returning them back into market economies. In reality, during this era no major economic developments were realized.

Major reforms started being implemented in the Chinese economy after 1978 that were meant to grow the economy. Prior to the economic reform, the country’s economy was closed up with high dependence on only local exchanges (Chow 835). The introduction of the open-door policy in 1978 encouraged both foreign investment and trade. By 1987, foreign trade volume rose up to 25%, and it reached 37% by 1998 of its GDP. Numerous institutional reforms were made such as provision of exports to substitute the needed imports, in accordance to the central planning. All these reforms paired with the high population of the country, China has been able to largely grow its economy. Regrettably, the economic reforms seemed to have overlooked the need for human development, and only focused on profit gaining. Aziz and Cui (181) explain that actually, China moved from one extreme to the other, and there is need to strike a balance between human development and economic development so as to ensure sustainability.

The recent trends in income inequality and their link to the problem of economic imbalance

According to the IMF inequality has been one of the major challenges in both developed and developing countries. Of the broader and complex issues is the income inequality which extends to ethnicity, disability, gender and age among others (Amiti and Freund 58). Since the financial crisis, the issue of income inequality has been associated with growth and development. China for instance, has been marked with tremendous economic growth since the start of the opening-up reform of 1978. Throughout 2012, its Gross Domestic Product averaged approximately 10%. Unfortunately, during this period of rapid economic growth of about 3½ decades, the country has experienced considerable rise in income inequity (Barlow 155). To start with, in China income inequity is presented through income distribution factors such as wage dispersion, functional income sharing, personal and household market income allocation, and disposable household income distribution.

The current economic growth in China is largely driven by the export and investment dynamics with domestic consumption met at low power. This is a major characteristic of profit-led regime, under which little attention is given to income distribution (Aziz and Cui 181). This type of economic growth is unsustainable and may lead to the unrest of the less fortunate population in society. The profit-led regime concentrates more on gaining profits from export and investment extruding the share of labor. The resulting consequences are imbalances of internal structures marked with tremendously low consumption-to-GDP share. The rise in both the personal and functional inequality in China has been associated with the country’s large surplus in its current account, and its weak demand in consumption (Barlow 160). In particular, the primary distribution share that goes to government and other businesses in China has raised from 16% in the 1990’s to 20% currently. Meanwhile, household’s share is in a steady decline and the firm’s profits are used to finance investment. This form of economic development has only fostered the enrichment of the rich Chinese.          

Income inequality has also been found to have great effects on China’s economic growth currently. The major impact of inequality is the going down of the domestic consumption, which affects GDP negatively (Amiti and Freund 60). The reduced power of internal demand has forced the country to solely depend on export and investment, and these two economic factors are too uncertain. In case a shock emerges on these two factors resulting from the global financial crisis, China’s economy is likely to receive an intense destructive blow. To curb the income inequality, the China government should focus on a wage-led regime, in which emphasis should be on the labor market policy. This form of regime has been termed as more sustainable, and is likely to bring down the income inequality challenges (Barlow 161). The labor market policies include wage bargaining agreements and the introduction of the minimum wage with the aim of increasing the workforce wages and reducing wage inequity.