China Must Enhance Productivity in Light of Demographic Challenge, Advises Economist

Amidst the demographic intricacies China faces, the call to elevate productivity has emerged as a pressing concern, according to David Mann, the Chief Economist for Asia-Pacific, Middle East, and Africa at the Mastercard Economics Institute. Mann emphasized that the need to invigorate productivity is a direct response to the demographic complexities that the nation grapples with. He shared his insights during an interview on CNBC’s “Squawk Box Asia.”

Highlighting the context, Mann elucidated, “If you go back 10, 20 years in China, you had so much of growth coming purely from just more people showing up each year — that labor contribution rather than capital or productivity.” He underscored that the landscape has shifted, necessitating a heightened focus on productivity. The demographic shift calls for innovative strategies to harness productivity as a means of driving growth.

Mann emphasized that the onus is on Beijing to channel capital in ways that stimulate productivity. The aftermath of China’s Covid-19 controls, which concluded in December, has revealed an economic rebound that is losing steam. The second-quarter economic growth of 6.3% represents a deceleration from the first quarter’s 2.2% quarter-on-quarter pace. This has been compounded by the challenges facing the real estate sector and a decline in exports due to global demand fluctuations.

However, the demographic challenge faced by China adds an additional layer of complexity. Mann highlighted that even though the working-age group is contracting, the sheer magnitude of China’s population, which stands at around 1.4 billion, makes practical implementation a challenge. The demographic shortage necessitates a shift towards prioritizing private sector growth to alleviate productivity pressures.

Mann emphasized the importance of nurturing the private sector as a catalyst for innovation and productivity enhancement. He underscored, “The extra challenge China has though — unlike say even somewhere that has a smaller population — is about numbers.” Mann further explained that fostering a robust private sector is integral to sustaining growth while avoiding less productive options such as residential real estate investment.

In conclusion, Mann’s insights underscore the critical role of productivity in China’s economic growth strategy, especially in the face of demographic challenges. The need to transition from labor-intensive growth to innovation-driven productivity becomes paramount, signaling the necessity for innovative approaches and strategies to ensure China’s continued economic development.