Author: Editorial Board, ANU
China has a new Premier. Former Shanghai Party Secretary Li Qiang has taken the number two spot in China from Li Keqiang, who retired after two terms even as his boss, President Xi Jinping, is delaying his own departure. At a press conference, the new premier cautiously suggested that President Xi would not be the only one working longer than expected: ‘“careful studies” would be made about raising the retirement age for some, perhaps all, Chinese workers’.
The news that China’s population shrank this year for the first time since the 1950s on some reckonings presages an end to the country’s economic modernisation. Without a young and rapidly growing workforce, the impetus to economic growth and modernisation could peter out, some contend.
With an ageing population, a smaller proportion of the workforce has to cover for those not engaged in productive employment and, by simple arithmetic, that drags down average per capita output. A young and rapidly growing population has the potential at least to lift average per capita output because it more readily absorbs the new skills and knowledge to boost productivity or output per head. That’s what gives the old aphorism that China will grow old before it grows rich its ominous ring.
Those who worry about China’s rising power suggest that India is now the best hedging bet, with its much younger and rapidly growing population, although that will depend on whether there is sufficient investment in physical and human capital to stave off immiserising growth. In any case, India’s income is still less than one-fifth that of China. Even if China were to stop growing altogether and stagnate completely, and India were to grow at 7 to 8 per cent every year and double its income every decade, India won’t catch up with China until 2050.
The impact of China’s demographic transition on its economic modernisation is more complex and gradual than these accurate propositions, qualified by the assumptions on which they rest, suggest. Transition takes time. And its character will be qualified by both feasible policy responses and the behaviour of ordinary people to the new circumstances they face.
As Peter McDonald argues in this week’s lead article from the latest issue of East Asia Forum Quarterly, edited by Jocelyn Chey and Ryan Manuel, ‘[i]n the short to medium term, between now and 2040, China’s labour force will fall by only 8 per cent assuming constant age and gender labour force participation rates … because the size of the labour force will increase at older ages while falling at younger ages’.
As Premier Li Qiang somewhat cheekily hinted, the Chinese government has scope to lift older age labour participation rates. That can offset the projected fall in the labour force. In China, older people also have an incentive to continue working because of low pension coverage and few children to provide support, although they are overwhelmingly low-skilled.
A shift from low-skilled, labour-intensive production to higher value-added production based on advanced technologies, McDonald reminds us, is what’s necessary for transition from middle income to higher income status. China can no longer depend on the demographic dividend (a growing workforce, higher labour participation and higher employment) but needs higher labour productivity to drive growth. This is a transition that has been successfully navigated in Japan, South Korea and Taiwan and is already well under way in China, a country ‘which has almost half of the world’s industrial robots and is a manufacturer of electric vehicles, lithium-ion batteries and photovoltaic solar panels’.
The next two decades will be critical.
In the years leading up to 2040, ‘China’s highly productive young workers (who unusually earned roughly twice that of their 50 plus year old counterparts in 2014) will age and increase labour productivity across the age range of the labour force. Each new generation entering the labour force will be better educated than its predecessors. This should ensure healthy economic growth in China over this period’, says McDonald.
Demographic changes that are now underway will certainly have major impacts on the economy of China. But how these changes will all play out is unclear, McDonald points out — especially in the longer term where there is a high degree of uncertainty in population predictions — because there is no precedent of a population falling by such vast numbers (around 658 million between now and 2100). In the medium…
Balancing China’s labour migration through education
The 2020 Chinese census showed a 69.7% increase in domestic migrant numbers, leading to concerns about regional economic disparities and the impact of skilled labor migration on underdeveloped regions.
Yongjie Xiong, a scholar at the Central University of Finance and Economics, discusses the findings of the 2020 Chinese census, which revealed a 69.7% increase in domestic migrant numbers compared to 2010 data. This significant influx of people has sparked debates about the Chinese government’s approach to managing large-scale labor migration.
The shifting landscape of China’s migrant worker demographics reflects changes in employment sectors and educational attainment. Notably, a higher percentage of newer generations of migrant workers are involved in the manufacturing sector, indicating a shift away from sectors like construction. Additionally, the newer cohort of migrants is better educated, which has implications for labor dynamics in urban environments.
These changes in labor demographics could exacerbate regional economic disparities and impact technological developments in various regions. The depletion of skilled labor in underdeveloped areas could hinder growth and affect the technological decisions of firms, ultimately widening the economic gap between cities.
As regions grapple with the challenges and opportunities presented by labor mobility, examining the impact of these changes on the economy and society is crucial for informing future policy decisions.
Annual Confirmation for China IIT Special Additional Deductions to Commence on December 1st
Starting December 1, 2023, the confirmation process for annual individual income tax (IIT) special additional deductions begins in China. All individuals, including expatriates, should determine eligibility and confirm the information before the end of the month to avoid difficulties in tax savings.
Starting on December 1, 2023, the confirmation process for annual individual income tax (IIT) special additional deductions begins. All individuals, including expatriates working in China, are advised to determine their eligibility for relevant special additional deductions. If eligible, individuals should promptly confirm the special additional deduction information through designated channels before the end of the month. Failing to confirm the IIT special additional deduction information may result in unnecessary difficulties in tax savings for the following year.
In 2019, China introduced special additional deductions for specific expenditures. According to the amended IIT Law, the taxable income amount of a resident individual in China shall be the balance after deducting the standard deduction (RMB 60,000 per year), as well as special deductions (social insurance and housing fund contributions), special additional deductions, and other deductions determined pursuant to the law, from the income amount of each tax year.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
China’s top diplomat visits Vietnam ahead of likely Xi trip
Chinese Foreign Minister Wang Yi is expected in Vietnam Friday, paving the way for a possible visit by President Xi Jinping this month.
Wang will co-chair the 15th session of the Vietnam-China Bilateral Cooperation Steering Committee, an annual event, with Vietnam’s Deputy Prime Minister Tran Luu Quang.
Vietnam’s Ministry of Foreign Affairs says the Chinese foreign minister will have talks with his Vietnamese counterpart Bui Thanh Son and greet Communist Party General Secretary Nguyen Phu Trong and President Vo Van Thuong.
Xi – who is also the Chinese Communist Party General Secretary – was originally expected to visit Hanoi in October or November for talks with his counterpart Trong, who was in Beijing last year. Instead, Xi traveled to San Francisco for November’s APEC summit and a meeting with U.S. President Joe Biden. His Vietnam visit is now expected to take place from Dec. 14-16.
Since Trong’s 2022 China trip Vietnam has elevated its relations with the U.S. to a “comprehensive strategic partnership,” putting it on a par with China, along with India, Russia and South Korea. This week Vietnam also conferred its top partnership ranking on Japan during a visit to Tokyo by its president Vo Van Thuong.
Improved relations with Vietnam are likely to help the U.S. and Japan diversify supply chains and reduce their reliance on a politically and economically turbulent China. That in turn seems to have prompted Beijing to seek even stronger ties with Hanoi.
Carl Thayer, a Vietnam analyst and emeritus professor at the Australian Defense Force Academy in Canberra, said when Xi visits Hanoi he will likely want to discuss the same issues with Trong that U.S. President Joe Biden raised with the Vietnamese leader during their September meeting:
“[I]mproving the efficiency and stability of bilateral supply chains, creating better conditions for Chinese businesses to invest and operate in Vietnam, enhancing cooperation in e-commerce and the digital economy, increased science and technology joint research, education and training exchanges, … green development and climate change response, public health cooperation, protection of water resources along the Lancang-Mekong River, cross-border tourism and cultural exchanges, and coordination on international issues.”
China is Vietnam’s largest trading partner with bilateral trade rising 5.5% last year to US$175.5 billion, according to Vietnam’s Ministry of Industry and Trade.
China’s Commerce Minister Wang Wentao also visited Vietnam this week pledging to deepen trading ties and open the Chinese market to more agricultural imports.
Despite an improving trade relationship, Vietnam and China have clashed frequently over territorial claims in the South China Sea. Hoang Viet, an expert on the issue, told Radio Free Asia that Beijing is likely to tone down its rhetoric, in order to avoid souring top level relations.
“In anticipation of Xi Jinping’s visit to Vietnam, China may exercise maximum restraint to create a more moderate atmosphere,” he said.
Despite their differences in the South China Sea, China and Vietnam have been holding joint patrols between their navies and coast guards in the Gulf of Tonkin in November and December.
Beijing and Hanoi said the patrols aimed “to carry forward the traditional friendship and deepen mutual trust between the two countries, as well as further promote mutual understanding between the two militaries.”
Edited by Elaine Chan and Taejun Kang.
RFA Vietnamese contributed to this story.
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