China population turning-point to spur inflation:state economist

 Published: 5/4/2011 9:47:00 PM GMT
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BEIJING (Reuters) – China's census results show the world's second-biggest economy is nearing a demographic watershed that will auger wage rises, higher inflation and relatively lower growth, a prominent government economist said in comments published on Thursday.

Ba Shusong, a senior economist at the State Council Development Research Center, which advises the central government, said the 2010 census data issued last week, together with a clutch of other statistics, showed China's supply of abundant cheap labor would start shrinking soon.

"The current data show China has already crossed the Lewis turning point, and at the same time the window of the demographic dividend will soon close," Ba wrote in the Economic Information Daily.

Ba was referring to the Nobel-prize winning economist Arthur Lewis' theory that as a developing country modernizes, workers' wages begin to rise quickly once surplus rural labor shrinks to the point that labor shortages emerge.

"The shortages of rural migrant workers since 2004 have been no passing blip, but the signal that a major turning point is at hand -- a transformational trend," Ba wrote.

Census data released last week showed that the proportion of young Chinese is shrinking as the elderly population grows.

The proportion of Chinese aged 14 or younger was 16.60 percent, a fall of 6.29 percentage points from the number in the 2000 census. Those aged 60 or older increased to 13.26 percent of the population, up 2.93 percentage points.

Many economists have forecast that China is entering a demographic transition that will produce far-reaching economic consequences. But the comments from Ba, who advises central policy-makers, showed how those concerns may feed into planning for inflation, growth and consumption in coming years.

The converging consequences of a disappearing labor surplus and the transition to an older population with more non-working retirees dependent on their families and welfare will be an "enormous challenge" for China, wrote Ba.

"Workers' rising wages will push up the cost core so that the low inflation possible when labor supply was abundant will be unsustainable," he wrote. "Second, after crossing the turning point, economic growth will experience systemic slowing."

China has about 242 million rural residents who work off the farm, and about 153 million of them are migrants working outside their home towns.

Nationwide, rural incomes in China rose 10.9 percent in 2010, outpacing a 7.8 percent rise in urban incomes, reflecting rising wages for the hundreds of millions of migrant workers.

China's consumer price index rose an annual 5.4 percent in March, the biggest increase in nearly 3 years, and some analysts have said the government faces a hard task keeping to its target of 4 percent annual inflation given rising labor costs and rising commodity and fuel prices.

Ba said China needed more even income distribution to ensure that consumption can shore up economic growth.

"The pace of investment growth will slow, and the driver of economic growth will shift from investment to consumption," he wrote.

(Reporting by Chris Buckley; Editing by Ken Wills and Alex Richardson)


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