Editor's note: This column is the conclusion to a series that explores China's demographic challenges. In parts one, two, three, four and five, we examined China's retirement, pension, financial and labor systems, as well as China's geographic divides. This final section outlines how external factors and geopolitics complicate the picture.
China's population is forecast to almost halve by the end of the century. While no country has attempted to economically overcome a population decline of this magnitude, the previous parts of this series have argued that China can surmount the risks of its shrinking population if it passes necessary (and sometimes painful) policies. These policies would aim to manage China's retirement and social security systems, the suboptimal relationship between real estate and capital markets, labor mismatch, geographic divides, and the transition from a middle-income to a high-income economy.
Nevertheless, there is no demographic or economic model for China's road ahead, especially in the face of geopolitical circumstances that are sometimes well beyond China's direct control. Chinese policymakers have staked the country's assertive geopolitical strategy on the assumption of a declining West and an ascendant China, but demographic issues and slowing economic growth suggest that this assumption may be flawed. This exposes a gap between strategic objectives and real capacity that spells risk to China's development.
Demographics and the Military
China's workforce peaked in 2011. Since then, China's labor pool has continued to shrink at an accelerating rate, and the total populations of the United States and its allies, which already total 70% of China's, are forecast to reach parity with China's around 2050. What's more, the population gap between the United States and China will likely shrink to a relatively small 400 million (from around 1.1 billion currently) by 2100. Though this timeframe is beyond the scope of immediate concerns, it speaks to the notion that time is no longer on China's side.
One way this shrinking population will affect China's strategic goals (beyond the economic implications discussed in previous parts of this series) is by lessening the conventional manpower available for the country's still untested armed forces. This development will put even more pressure on the country to develop its high-tech sector. China has already likely achieved technological superiority over the United States in certain areas, such as hypersonic missiles, but Beijing will have to make even greater technological gains in the military space to compensate for its waning populace.
This time crunch has also contributed to Chinese President Xi Jinping's distinct foreign policy choices, such as a slow strategic and rhetorical retreat beginning around 2014 from the longstanding "hide your strength, bide your time" mantra cultivated in the late 1970s. Under Xi, China has more actively pressed its territorial claims (Taiwan, the South China Sea and the East China Sea) and challenged perceived U.S. hegemony in the Asia-Pacific region and beyond. While this policy shift partially reflects China's vastly improved military capacity, it is also due to China's closing window of opportunity — both in terms of population decline and the diminishing economic dividend.
While this sense of urgency could lead China to take more drastic military actions, war would severely exacerbate the country's demographic challenges. Because the vast majority of Chinese families have only one child, a full-blown armed conflict could extinguish millions of Chinese bloodlines, creating an acute risk of social turmoil and widespread anti-government sentiment. This possibility will limit Beijing's willingness to pursue large-scale conflict, revealing how demographic decline is both a driver of and a constraint on China's geopolitical ambitions.
Pressure on the Social Contract
The Chinese social contract since the days of former leader Deng Xiaoping has been that the Party will provide economic prosperity if the people remain loyal and quiescent on political matters. To date, the government and populace have by and large upheld their ends of the bargain. However, the viability of this contract is declining since China can no longer rely on outsized economic growth to fuel an increase in living standards, leading to a projected new normal of 3-5% annual economic growth in the medium term. As the economy slows, socioeconomic inequalities will increase alongside sharpening geographic divides and regionalism. With enough strain, China's social contract could rip open, potentially leading to protests, unrest and, perhaps more consequentially, widespread doubt as to the Party's political legitimacy.
These domestic risk factors have previously contributed to government overthrow, which is a chief fear among policymakers. To forestall this possibility, Beijing will seek to enhance its legitimacy and create unity by increasingly emphasizing national security and Chinese nationalism. Utilizing a siege mentality, China will claim that the United States and its partners are attempting to contain China's growth, which, given that this is by and large the case, will not be a difficult idea to sell. The Party previously changed the focus of its social contract from revolutionary ideology under Mao Zedong to pragmatic economic development under Deng, showing that a fundamental shift in the source of the Party's legitimacy has worked before. However, even a successful transition of the social contract will happen incrementally and keep Beijing vulnerable to policy failures that may chip away at its legitimacy.
Tech Restrictions
In recent months, the United States has imposed export controls to block China from accessing technology and machinery used to produce semiconductors and has convinced some of its allies — such as Japan and the Netherlands — to follow suit. Given that China lags behind in cutting-edge semiconductor manufacturing equipment capacity — and has little recourse to circumvent these export controls for the time being — these restrictions are severely inhibiting China's semiconductor sector and, by extension, its plans for high-tech innovation intended to spearhead the country's economic transition. Moreover, the United States is considering similar export controls on artificial intelligence (AI) and cloud computing technologies, and the European Union is discussing its own set of restrictions on technology exports to China. This suggests that supply chain resiliency will play a larger role in Chinese foreign affairs and policymaking going forward in an attempt to bypass and neutralize these Western-led restrictions.
These export controls are also compounding China's employment struggles. China's youth unemployment rate hit a new high of 20.8% in May, revealing that there is a significant discrepancy between the increasing number of highly educated Chinese workers and the number of jobs that meet their qualifications. With Western nations constraining the growth of China's technology sector, this trend will likely only grow, further straining China's social contract. However, Western countries' attempts to cut off China's access to emerging technologies will make it easier for Beijing to emphasize the importance of national security as that social contract adopts a new focus.
International Leadership
An additional geopolitical challenge for China is resource scarcity, particularly with respect to its ever-growing demands for fuel and other energy sources, as well as high-protein foodstuffs. Because China does not have enough of these resources within its borders to ensure a smooth economic transition, it will look to increase its footprint and investments abroad, partially via Beijing's Belt and Road Initiative (BRI). BRI investments enable China to expand its influence in younger (and primarily less developed) Eurasian countries with lower labor costs, while also linking the region to tertiary Chinese territories in Tibet, Xinjiang and Yunnan. In addition to bolstering its relationship with Russia, which has become a source of cheap hydrocarbon products following its invasion of Ukraine, China is making significant inroads into Central Asia where it can import oil and gas.
To ensure it has enough resources to cope with its aging population, China will also look to leverage trade routes beyond its immediate periphery by forming and leading international institutions and groupings, such as the Regional Comprehensive Economic Partnership (the largest trade pact in the world) and the BRICS forum. In doing so, Beijing will seek to insulate its supply chains from potential shocks to its bilateral economic relationships amid its growing rivalry with the United States — particularly in light of the sanctions Washington and its allies have imposed on Russia following its Ukraine invasion; such sweeping Western sanctions would be far more catastrophic for China, a net importer of food and energy, and could lead to devastating food and energy shortages.
In addition, China's desire to challenge the United States as the world's only superpower has pushed it to cultivate economic partnerships in Central, South and Southeast Asia and beyond — not just through engagement, but by providing an alternative development and authoritarian governance model to third countries. However, these efforts could be constrained, as China also eschews formal military alliances as both a matter of policy and its political culture, which isolates the country despite its vast network of global economic partnerships.
Indeed, China has made efforts over the past year to raise its international profile as a responsible stakeholder and peacemaker. In 2023 alone, China brokered detente between Saudi Arabia and Iran, sent a mediator to attempt to broker peace in Ukraine and put forward a new peace proposal for the Israel-Palestine conflict. These initiatives reflect Beijing's desire to secure and multiply partnerships (but not alliances), and it is doing so with particular urgency to make up for lost time following three years of intense isolation during the country's "zero-COVID" policy.
Conclusion
China's population decline is coming amid a long list of other interrelated challenges, but Chinese leaders are not sitting on their hands. Though some policies will be less successful than others (such as Beijing's pronatalist initiatives), the crux of the matter will be transitioning China's economy to high-income status via the potential avenues laid out in this series while mitigating external threats to its development.
But China's recent economic slowdown — combined with its shrinking and aging population — has cast doubt on assumptions about a declining West and an ascendant China. As China pursues its goal of challenging the United States as the world's only superpower, the divergence between its growing geopolitical ambitions and shrinking demographic strength will invite new challenges from potential adversaries that Beijing will struggle to surmount.
