Policy Brief n.54 - China’s Demographic Decline Reconsidered
In China, the working-age population is shrinking, but the much higher education level of new labour-market entrants more than offsets the decline in headcount. A Policy Brief by Pietro Galeone, and Daniel Gros
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Executive Summary
China's population has entered a phase of structural decline. According to the latest official figures released in January 2026, the national population stood at 1.4049 billion by the end of 2025, marking a further population contraction for the fourth year in a row, with a net decrease of 3.39 million compared to 2024.
At the same time, the fertility rate in China has been steadily declining already since the 1980s.
In 2025, the birth rate hit its lowest level on record reaching 5.63 per 1,000 people, reinforcing concerns of a rapid population decline as such a low fertility rate means that each generation is only one half of the preceding one.
The yearly number of births over the past 70 years reached an all-time low of 7.92 million births in 2025.
This dire demographic outlook is encapsulated in the asserting that “China will grow old before it gets rich”. For US-based geostrategists this is a cause for optimism as it implies that in the long run the US is likely to stay ahead economically, but for investors this is a reason to be concerned about China's economic outlook.
Yet anxieties of this kind are not new. Similar concerns about the excessive expansion of tertiary education emerged in advanced economies in the past. By the late 1980s, engineering graduates in the United States accounted for only one-third to one-sixth of the share observed in Europe or Japan, fuelling fears of technological decline and loss of competitiveness.
However, this narrative neglects one key fact: as the population shrinks, its skill level is increasing. The reason is that the young generation, while smaller, is more educated – much more than the parent generation.
This implies that while the number of working-age individuals is shrinking, they are much better educated.
Our calculations suggest that the increasing qualification of the new entrants to the workforce more than compensates for the decline in raw numbers.
We also extend this analysis by capturing another striking fact about Chinese demographics, namely the weakness of the ‘educational middle class’.
At present, those without completed secondary education still make up two thirds of the working age population (against less than a quarter in Europe and less than one tenth in the US).
But the very high university enrollment ratios among the young imply that the share of graduates will increase over the next generation, keeping the middle class – i.e. those with secondary education completed– a smaller minority.
This is very different from the US and Europe, where the middle level is usually the largest element in the working age population.
Additionally, the negative growth impact of population ageing has so far been largely offset by productivity gains arising from labour reallocation from lower-productivity rural activities to higher-productivity urban employment.
This urbanisation process has contributed around 0.4 percentage points per year to economic growth, mitigating demographic pressures until urbanisation is expected to plateau around 2035.
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
