How China can turn its demographic challenge into economic edge

China's elderly exercising in a park in Beijing. Next year, the republic will raise the retirement age for the first time since 1978. — Bloomberg

CHINA stands on the verge of a profound demographic shift. With an ageing population and mounting economic uncertainty, the government’s recent decision to raise the retirement age by up to five years is a bold move designed to avert what many fear could be an impending crisis. Yet while this policy addresses immediate concerns, it also points to a deeper issue – one that extends beyond shrinking workforces and pension deficits.

The true test for China lies in boosting labour productivity. Raising the retirement age is merely a stopgap for its strained pension system, which is projected to run dry by 2035. Several regions, particularly in China’s industrial northeast, rely heavily on subsidies from wealthier coastal provinces to maintain pension payouts.