Sino Strategies: China's Influence & its Implications for the U.S.

Summary

• China plans to gradually raise its retirement age starting in 2025 to address a demographic crisis, including declining fertility rates and increased life expectancy.
• For the U.S., these changes could stabilize China’s workforce, prevent supply chain disruptions, and potentially benefit American businesses and consumers with lower prices on imported goods.

Introduction

For the first time since the 1950s, China is planning to raise its retirement age. As reported in Chinese state media, lawmakers voted to gradually raise the statutory retirement age beginning January 1, 2025 over the next 15 years. For men, the statutory retirement age will be gradually raised from 60 to 63 over the course of these 15 years. For women cadres and women blue-collar workers, the retirement age will be raised from 55 to 58 and from 50 to 55, respectively. 

Additionally, Chinese employees will have to contribute a greater share of their earnings to the social security system in order to receive monthly pension benefits. From 2030 on, employees will have to contribute to the pension for at least 20 years, up from 15, to reap the benefits of the social security system. 

China’s Demographic Crisis

The decision to raise retirement ages comes amid a demographic crisis in the People’s Republic, including rapidly declining fertility rates and increased life expectancy, as well as an urban labor force that continues to grow and which will exacerbate the demographic crisis once it reaches its projected peak in 2035. The decision has drawn skepticism and discontent among the Chinese population, with some claiming that this is only the beginning of retirement-related changes, while others said the decision was to be expected. 

More broadly, China’s demographic challenges are the result of several economic and policy factors over the past few years, from the decades-long one-child policy and shrinking government benefits to a slowed economy and headwinds generated by the COVID-19 pandemic and a faltering property sector. Beijing has instituted measures to combat these challenges, but a more structural overhaul may be required to support the national economy and manage the transition that roughly 300 million people aged 50 to 60 who are working in China and plan to exit the workforce over the next decade. 

Implications for the U.S.

1. U.S. Policy Implications

China is a critical link in the global supply chain, particularly for electronics, textiles, and consumer goods. If more people remain in the workforce, production may continue smoothly, and this could prevent the kind of disruptions that lead to higher prices in the U.S. for items like smartphones, appliances, and clothing. U.S. policymakers might reconsider trade strategies, such as tariffs or other trade barriers, to maintain leverage in trade negotiations with the People’s Republic. 

2. U.S. Business Implications

Raising the retirement age would presumably keep more workers in the labor force for a longer period, thus potentially stabilizing China’s workforce and overall economy. This could also mean that Chinese workers have more disposable income for longer periods, sustaining demand for U.S. goods and services. This could increase the profitability of American companies operating or exporting to China, potentially leading to lower prices or more competitive offerings in the U.S. market as companies grow.

3. U.S. Consumer Implications

China’s extension of the retirement age of its working population could reduce labor cost pressures that would otherwise arise from a shrinking workforce. In turn, lower labor costs in China could slow inflation for imported goods, benefiting U.S. consumers by keeping prices lower on Chinese-made products.