China’s population decline could spell trouble for the global economy: The Chinese government last week announced that in 2022 the country recorded some 9.6 mn births and 10.4 mn deaths, marking the first time China has seen its population decline since the 1960s. Last year’s birth rate was the lowest since at least 1950, Bloomberg reports. Despite efforts in recent years to scale back the country’s one-child policy, officials in China have been unsuccessful in avoiding the population decline, which could have far reaching effects on the global economy and its prospects for growth.

The country’s manufacturing capabilities will be put to the test: As China’s working-age population continues to decline over the coming years — about 0.2% every year until 2030, according to S&P Global Ratings’ most recent estimates — economic growth is expected to come under strain.

The implications on the global economy are not insignificant: A shrinking labor force and less productive manufacturing sector could mean higher prices for goods sold in Western countries already reeling from high inflation.

A shrinking population brings with it a risk of slower consumption: While economic growth in China has long been driven by its position as a global manufacturing powerhouse, in recent years growing domestic consumption has also become a considerable growth engine that was expected to help carry much of the weight in the country’s future economic expansion. Now with a dwindling population, China’s consumption-led expectations of growth are also under threat.

This is all taking place far sooner than authorities expected: A shrinking population is fairly common in countries where a larger population of more affluent people starts to emerge, as seen elsewhere in the region, including in South Korea and Japan. The problem with China is that its population decline comes at a time when its economy is still solidly middle income.

And despite government efforts to curb this trend: The Chinese government has introduced incentives like tax cuts and stimulus packages for parents with newborn babies since it brought its one-child policy to an end in 2016, but these policies haven’t been successful, the New York Times reports.

The decline coincides with a low point for the Chinese economy: China’s economy last year grew at its second slowest pace in about four decades — only 3%, down from 8.1% in the previous year. Its poor performance in 2022 is only eclipsed by 2020 when the full force of covid lockdowns brought economic growth to some 2.4%

Lasting effects of the country’s one child policy have left a significant gender imbalance in the country’s demographic makeup. Currently there are about 722 mn men and 690 mn women living in China. The unusually deep gender imbalance is more pronounced in rural areas and has led to more young people staying single for longer.

The high cost of raising a kid is also partially behind this: Young people in China are increasingly finding they can’t afford to have kids thanks in part to rising childcare costs, the NYT reports. For others, the pandemic and the government's heavy-handed policies towards containing its spread have caused them to question whether it's the right time to be having children.

But China’s fate isn’t sealed just yet: Addressing underemployment among its working-age population in both urban centers and rural towns could help stymie the negative effects of a dwindling and aging population over the coming years. Plus, more automation and technology-assisted manufacturing could help patch up productivity slumps at factories. “Economic growth will have to depend more on productivity growth,” Zhiwei Zhang, chief economist at Pinpoint Asset Management told Reuters.