China between Economic Growth and Mass Immigration

• Date: 01 March 2013
• DOI: http://doi.org/10.1111/j.1749-124X.2013.12015.x
• Published date: 01 March 2013
• Author: Michele Bruni

56 China & World Economy / 56–77, Vol. 21, No. 2, 2013

©2013 The Author

China & World Economy ©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China between Economic Growth

and Mass Immigration

Michele Bruni*

Abstract

In order to continue along its path of sustained economic growth, China will need, probably

in just a few years, certainly after 2030, an extremely high number of immigrants. This

conclusion, which contrasts with a recent World Bank scenario suggesting that the decline

in labor supply due to demographic trends can be faced with sustained growth in productivity,

is based upon a demand-driven model of migration. Moreover, according to the same

model, the decline in fertility (and the one child policy that has been partially responsible for

it) will end up provoking immigration flows above replacement level. The working age

population and the total population will continue to increase, and China will remain the most

populous country on the planet. The last part of the paper surveys the policies that China

could adopt to reduce its structural need for foreign labor.

Key words: China, demography, international migrations, labor market, scenarios

JEL codes: F22, J11, O53

I. Introduction

In contrast with the theory of demographic transition, the decline in fertility that had begun

with the industrial revolution has not stopped at the replacement level, but has dropped

below this threshold in numerous developed and developing countries. It has been almost

unanimously maintained that this decline in the fertility rate will result in a reduction of the

total population, an even more pronounced contraction of the working age population

(WAP), and a progressive ageing phenomena that will seriously threaten welfare systems.

Consistent with this general scenario, the Chinese population is expected to peak at

1395 million around 2025, and then progressively decline to 943 million by 2100 (Population

* Michele Bruni, Member of the Center for the Analysis of Public Policy, Department of Economics,

University of Modena, Modena, Italy. Email: mbbruni44@gmail.com.

57

China between Economic Growth and Mass Immigration

©2013 The Author

China & World Economy ©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Division, 2011). More importantly, the WAP (the source of labor supply) is expected to

reach a maximum of 996 million in 2015 and then drop to 526 million by the end of the

century.

These projections and their implication that China will be affected by a devastating

decline in labor supply have not been given much consideration by many analysts, with

China viewed as the emerging power of the 21st century. It is not clear whether the lack of

interest in these dramatic data depends on the fact that political analysts and historians do

not believe them, or they do not fully appreciate their economic implications.

Economists do not seem to consider this as a major problem. A recent study carried out

by the World Bank, together with the Development Research Center of the State Council

(World Bank, 2012), represents an interesting example. The study aims to identify and

analyze China’s medium-term development challenges and to outline the strategies that

China will have to follow to continue, although at a slower pace, on its development path.

Not only does the World Bank pay very little attention to labor market issues, but also

demographic trends do not appear between the risks and vulnerability of China. Having

acknowledged that China’s labor force is projected to start shrinking as soon as 2015, the

World Bank report provides a very simple answer to the issue. Total employment is projected

to decline, in parallel with the WAP, by 0.2 percent per year between 2016 and 2025, and by

0.4 percent between 2026 and 2030. How should China deal with a decline in employment of

more than 30 million over 15 years? Even this does not worry the authors of the report

because “workers will become more productive as physical and human capital stock per

worker continues to rise.” In conclusion, while the GDP growth rate progressively declines,

the rate of productivity growth will also decrease, but will conveniently exceed the GDP

growth rate by an amount equal to the rate of decline in employment.

An interesting opinion on the consequences of the demographic transition is expressed

in an anomalous report by the UN Population Division, with the suggestive title:

“Replacement migration: Is it a solution to declining and ageing population?” (Population

Division, 2000, p. 9). The report argues that: “Among the demographic variables, only

international migrations could be instrumental in addressing population decline and

population ageing in the short to medium terms.” However, the report does not provide a

sound theoretical explanation of why countries with fertility rates below replacement level

should need immigrants: a contraction of the WAP is not by itself a sufficient nor a necessary

reason, and the same can be said of a decline in total population.

I have previously argued (Bruni, 2009, 2012) that the decline in WAP ends up provoking

a reduction in labor supply, and once the unemployment rate has been brought to the

frictional level, the activity rate of the local population has reached the physiological level,

and the excess supply of labor available in less developed areas has been absorbed via