When Beijing unveiled its 15th Five-Year Plan in March, it singled out two demographic challenges: an aging population and falling birth rates. Both are already transforming Chinese households. By 2036, nearly a third of households will have a child at home, down from half two decades earlier, while the share headed by someone over 65 will climb from one in eight to nearly one in five. The plan calls this the “silver economy.”
A demographic shift with economic consequences
China is now crossing a threshold that Japan passed in 1996, when its over-65 population first exceeded 15% of the total. By 2050, projections from World Data Lab suggest China will have a demographic profile similar to Japan’s today, with about 31% of its people over 65. That shift is already stoking fears of a shrinking workforce. Reuters reported in January that “hundreds of millions of people” are set to leave the labor force, while the Financial Times has written about factories turning to robots to offset labor shortages, and Nikkei Asia has covered new rules encouraging older people to work past retirement age.
The demographic squeeze is also complicating Beijing’s efforts to boost domestic consumption. But the challenge is more severe than Japan’s, because Chinese consumers are not as wealthy. Japan reached a 20% over-65 share in 2005; China will hit that mark in 2032, when its per-person consumer spending will be only about three-fifths of what Japan’s was in 2005, measured at purchasing power parity.
The working-age population is set to shrink dramatically. The number of Chinese aged 15 to 64 is projected to fall from 990 million today to about 745 million by 2050, a drop of 245 million. Meanwhile, the over-65 population will swell from 214 million to 390 million. As a result, a growing share of spending will come from people who are no longer working. Today, one in seven yuan spent in China is by someone over 65; by 2050, that will be one in three.
Where the older market will grow
Even with modest budgets, the sheer number of older Chinese will make them a formidable consumer bloc. By 2035, if they were a separate country, they would rank as the fifth-largest consumer market outside China, behind only the United States, India, Britain, and Germany. There will be 313 million of them, spending $3.2 trillion a year, or about $10,300 per person.
In China’s big cities, older residents are just beginning to form a significant share of the population. Today, only 7 of the 212 cities with more than half a million residents have over-65 populations exceeding 20%. Shenzhen, Beijing, and Shanghai all fall below that mark. By 2040, 187 of those cities will cross the threshold, including Beijing (26%) and Shanghai (30%). Shenzhen, a magnet for young workers, will remain an outlier at just 7%.
But the big cities hold only part of the story. They are home to a quarter of China’s older population and account for under a third of their spending. Half of the growth in spending by older Chinese to 2040 will come from towns and rural areas outside any city of 50,000 people or more.
Incomes will lag behind the rich world
Whether in megacities or the countryside, older Chinese will have far less to spend than their counterparts in wealthy nations. By 2033, when China’s over-65 share matches that of the United States today, Chinese households will have about $20,000 of income per person, against $60,000 for Americans now. Even by 2050, when China will be much older than America is today, Chinese household incomes per person will be only about 55% of current American levels.
Most older Chinese sit at the lower end of the market. Five in six have a monthly budget of less than $1,400, classifying them as poor or lower middle class. State pensions do little to lift them, because most retirees draw the residents’ pension, which pays on average about a fourteenth of what retired urban employees receive. The IMF has noted that such small pensions leave retirees unable to maintain steady spending.
Over the longer term, the top of the market will grow. The number of older Chinese with upper-middle-class or rich budgets is projected to rise from about 7 million today to 72 million by 2050, and they will account for about half of all additional spending by older Chinese. Even so, the typical older Chinese will spend only about $15,900 a year in 2050, in purchasing power parity terms.
As households shrink and fewer Chinese have children, the demographic problems named in the Five-Year Plan will produce a silver economy long before a premium one. The market will grow through hundreds of millions of older consumers, most of them living outside the big cities. For companies selling to seniors, China will be the largest source of new spending in the world—but it will be a market built on volume, not on affluence.
