As the working-age population is declining in China, according to various reports President Xi Jinping is worried about the growth prospects that China enjoyed in the last three decades. The president and Premier Li Keqiang, have shown their concerns at several occasions. China’s working-age population has declined by 2.44 million in 2013 itself.
The situation has arrived for the country as it followed the one-child policy. Now the country has abolished the policy and promoting for more children. The country is also facing a record credit boom, with the central bank pumping funds into the financial system as the country faced money-market rates yesterday rose by the most in seven months.
According to market observers the decline of the labor force just makes everything more difficult in terms of generating growth. They also believe that China has less people to take part in production and that reinforces the need to be more productive. Additionally, as it makes more urgent the need for China to find ways to shift capital to areas of the economy that can boost productivity, the leadership is worried about the shortage of the labor force.
Though the country is not dead slow in terms of economic growth as its $9.4 trillion economy expanded 7.7 percent in the fourth quarter from a year earlier, the major challenge it is facing is that it cannot sustain this growth in the future as its labor force is declining. Yesterday, China’s benchmark stock index fell to the lowest in almost six months.
The major concern that the Chinese economy is facing is that its economic growth is slowing and share sales will divert funds from the market. Amidst concern, the nation’s money-market rates slid the most in four weeks today, despite the better market performance yesterday. Nevertheless, the benchmark seven-day repurchase rate also declined 105 basis points to 5.54 percent.
China is also facing another problem wherein income gains are slowing and urban per capita disposable income last year increased by merely 7 percent in real terms. The problem is being compounded with China’s working-age population decline which fell 3.45 million in 2012. There is a huge problem as the low-end labor market becomes tighter and tighter.
Additionally, growth in the labor pool which contributed about 10 percent of China’s economic expansion over the past 35 years is declining. The country may look for expanding and boosting productivity through changes to the financial and fiscal systems and deregulation and that is what the injection of funds in the financial system is all about.
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