Economic Slowdown in China Amid Race to End Ageing Population

Is the Chinese economy in for a tough ride in 2016?

4 min read
Economic Slowdown in China Amid Race to End Ageing Population
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Indian experts forecast a slowdown of the giant Chinese economy in 2016 as Beijing has girded up to implement its decision to scrap the almost four-decade-old one-child norm in the face of an ageing population. China watchers also saw Beijing continuing to flex its muscles in the South China Sea where it has disputes with neighbours Japan and Vietnam while Sino-Indian relations were likely to see an upswing with cautious movements in the strategic and security domain.

One of the biggest milestones in China’s history was the scrapping of the 37-year-old one-child diktat on 29 October 2015, and proposed implementation of a two-child policy later in 2016.

The Communist Party of China (CPC) proposed to dismiss the one-child policy scheme in an attempt to balance population development and offset the burden of an ageing population.

A final plan for the change will be ratified by China’s top legislature in March after which it will come into effect officially. It has been estimated that it would raise the population from the current total of 1.37 billion to an estimated 1.45 billion by 2030.

A combination picture shows 36 people, one person born each year that China’s one child policy has been in place, made from a series of portraits shot in Shanghai between 23 July and 20 September 2014. (Photo: Reuters)

This change was definitely important in the socio-political domain. The need to scrap the one-child policy was absolutely necessary due to China’s growing aged population. But the demographic dividend will be only seen after 25-30 years and not in the near future.

C Uday Bhaskar, Director of Society for Policy Studies (SPS)

China’s strength, its economy, took a beating when the yuan was devalued on 11 August by lowering its daily mid-point trading price to 1.87 percent weaker against the US dollar. The next day, it faced its second devaluation as it pushed down by another 1.62 percent against the US dollar. The devaluations resulted in Chinese exports getting cheaper and imports into China more expensive by that amount.

An investor looks at a screen showing stock information, after the new circuit breaker mechanism suspended today’s stocks trading, in Shanghai, China, January 7, 2016. (Photo: Reuters)

Data has shown that 64 percent of China’s total population still prefer the one child policy. The country will need an absolute majority for this to become a total success.

Professor Srikanth Kondapalli, Centre for East Asian Studies, Jawaharlal Nehru University

According to Arvind Yelery, associate fellow, Institute of Chinese Studies, the country’s economic growth will also depend on how the country manages its excessive commitments that it has made to complete by this year in terms of trade, communications and science and technology. There is speculation that a lot of fluctuations will occur after the third quarter of 2016.

China’s economic slowdown will persist even in 2016. In 2010, the gross domestic product (GDP) growth rate was a 10.8 percent. I expect at least a 6.5 percent rate or possibly even lower in 2016 as market confidence is decreasing. The yuan is coming back to its actual position, and even if it may not get devalued this year, the actual value will decline

Professor Kondapalli

On 1 December, the International Monetary Fund included the yuan in its Special Drawing Rights (SDR) basket that will make it the fifth reserve currency after the dollar, the euro, the pound sterling and the yen. However, the final inclusion will take another six to eight months.

China’s campaign of island building in the South China Sea has caused concerns among other regional contenders.

China’s claim towards the South China Sea is a matter of muscular assertiveness. The complex geopolitical situation here will remain.

C Uday Bhaskar

China claims most of the South and East China seas. Other countries in South East Asia have competing claims for the Spratly Islands, Paracel Islands and Scarborough Shoal, which are thought to have resource-rich waters around them.

According to Kondapalli, China will not agree to others asserting claim over the South China Sea. This tussle will continue and the issue will be clinched with military power.

A file photo of Xi Jinping with Narendra Modi (Photo: Reuters)

A golden moment in cementing India-China relations was when Prime Minister Narendra Modi visited China in May and inked a record 24 bilateral agreements, held summit level talks and signed 26 deals worth $22 billion.

China completed construction of two lighthouses in October and the government has reiterated that China’s construction completely falls within its own sovereignty. In 2015, China also moved closer in terms of bilateral relations with South Asian nations including India.

China and India have moved very cautiously in terms of bilateral agreements. The two countries will definitely engage more in the trade and economy sectors but when it comes to strategic and security domain, issue will definitely prevail for China’s support towards Pakistan.

C Uday Bhaskar

China-Pakistan relations took a new turn with President Xi Jinping’s visit in April 2015 to Islamabad, where he envisaged investments worth $45 billion and signed 51 agreements. The investments were expected for the projects that constitute the China-Pakistan Economic Corridor.

China-Pakistan relations will remain almost the same, but when Modi visited Islamabad on December 25, 2015, it did create a ripple effect. For China-India relations to flourish better, political investments are of the utmost importance

Arvind Yelery, Associate Fellow, Institute of Chinese Studies

He added that the economic front looks very optimistic as China will look to compete with the already existing and successful Japanese investments in India.

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