Recruiting in China

China plans to raise the retirement age for the first time since the 1950s, as policymakers confront the prospect of a shrinking workforce that damps economic growth.

“The age will rise gradually,” Hu Xiaoyi, a vice minister of human resources and social security, said this month. China’s compulsory retirement ages, now 50 for most women and 60 for men, are likely in 2020 to be about five years higher than they are now, according to economists surveyed by Bloomberg News.

Delaying retirement may be a more effective tool in alleviating labour shortages and driving growth than the easing of the one-child policy announced last month as part of the broadest policy reforms since the 1990s. More than three decades of population control are thinning the ranks of available workers, adding to constraints on expansion as President Xi Jinping’s government seeks to rein in debt-fuelled investment.

“I would think that a lot of people would want to voluntarily work longer if the policies are right,” said Chang Jian, China economist at Barclays Plc in Hong Kong, who formerly worked at the World Bank. “The government would get a lot more mileage from raising the retirement age than a partial relaxation of the one-child policy,” she said.

“Twelve of 18 analysts saw 55 as closest to the 2020 retirement age for women, with five saying 60 and one 65,” according to the Bloomberg News survey, conducted from 22 November to 27 November.

Men’s retirement

The retirement age for men is likely to rise to about 65, according to 14 respondents, while two said it would be closer to 70 and two said it would stay near 60, the survey found.

For women in white-collar jobs, the retirement age is 55, and there are other exceptions such as for heavy labour.

The working-age labor force in China declined by 3.45 million people last year, according to the government. The United Nations has forecast a drop of about 24 million in the population age 15 to 59 from 2015 to 2025, while people age 65 and older will increase by about 66 million.

Scarcity is helping push up labour costs, driving companies such as Samsung Electronics Co. to relocate production to countries including Vietnam.

Raising the male retirement to 65 by 2020 may help keep in the labor force some of what statistics-bureau data show were 41.5 million men age 47 to 51 in 2011. There were 51.5 million women age 37 to 41.

Yu Yongding, a former adviser to the central bank, said a higher retirement age won’t change China’s demographic structure and trends. At the same time, it’s definitely helpful for China’s labour supply, and therefore good for economic growth in the long run, Yu, a senior researcher at the Chinese Academy of Social Sciences, said in an interview in Beijing.

Pension shortfall

Fourteen Chinese provinces faced a combined pension shortfall of 76.7 billion yuan ($12.6 billion) in 2011, according to a report by CASS, a state researcher, the official Xinhua News Agency reported in October.

“A delayed retirement age, despite its unpopularity, is helpful for China’s economic growth and development by allowing people to work longer and making more efficient use of labour,” said Li Xiaoping, a Beijing-based researcher with CASS’s Institute of Population and Labour Economics.

“Letting people have more children, while more popular, may carry fewer economic-growth benefits because boosting the population alone doesn’t necessarily help expansion,” Li said.

Wang Yuanlong, a 42-year-old taxicab driver in Beijing, said that if the retirement age is raised to 65, I don’t think it’s worthwhile to make my pension contributions.

“It’s bad to think that I have to work every day when I am 65,” Wang said.

Support growth

Avoiding deeper declines in the labour force may help support economic growth that analysts forecast will slow. Expansion will decelerate to 7.4% in 2014 and 7.2% in 2015, according to median estimates of economists in a separate Bloomberg News survey this month.

China is also trying to sustain growth by encouraging some of the 600 million-plus rural residents to relocate to cities and better integrating the 260 million migrant workers who live in urban areas without getting full access to schools and other municipal benefits.

The Communist Party said last month that couples will be allowed to have a second child if either parent is an only child, instead of both parents. The party said it would consider raising the retirement age.

“Delaying retirement will slow the process of China’s labour surplus becoming a deficit,” said Zhu Haibin, Hong Kong-based chief China economist at JPMorgan Chase and Co. The shift will have a much bigger impact on the economy than the change in the one-child policy, because that will only start to affect the labour force in 20 years’ time, Zhu said.

Life expectancy

China isn’t the only nation grappling with the issue. The UK plans to raise the pension age to 66 from 65 by 2020 and may raise it to 68 by the mid-2030s. Australia’s pension age is scheduled to rise to 67 from 65 by 2023, and the government may need to increase it later to 70, the nation’s Productivity Commission said in a research paper last month.

“National average life expectancy in China was 72 for men and 77 for women in 2010,” according to government data. The highest was 82 for women in Beijing and Shanghai.

“The age of 50 or 60 is no longer regarded as old,” Yang Yansui, director of Tsinghua University’s Research Center of Employment and Social Security, said in Beijing. “The pension system just can’t be sustained if the pension access age is not extended.”