The population in China is aging rapidly. The proportion of people aged 60 years and above is expected to increase to 35% by 2050, turning the population into one of the oldest in the world at a fast pace. While aging poses great challenges, if managed well, these can be overcome to generate opportunities. Reforms to foster labor mobility and upgrading human capital will reduce the labor shortages stemming from aging. Greater public and private investments to strengthen elderly care services and facilities will create employment opportunities and improve people’s well-being.

Greater labor mobility and increased human capital

Mobility restrictions in China—the household registration system (hukou) and inability of migrants to claim social security benefits away from home—discourage transfers from provinces where there is a surplus of labor to ones where there is a deficit. Reallocating labor from low- to high-productivity sectors could add several percentage points to GDP growth. Accelerating the ongoing relaxation of the hukou policy and social security reforms for migrant workers to gain access to social services and benefits in their place of residency will remove such institutional mobility barriers.

The benefits of greater mobility can be maximized by investments in human capital. Gross enrollment rate in China’s senior high schools and the percentage of population with tertiary education in scientific and technical subjects need to increase. The growing digitalization of the economy adds pressure to the task. New learning methods should encourage lifelong learning, creativity, innovation, and problem-solving skills. Incentives must be developed for firms to provide on-the-job training, and initiatives to re-train workers whose skills are obsolete to prolong their participation in the labor force.

Increasing female participation in the labor market will also help to maintain the labor supply. Policies for equal employment opportunities, increased maternity leave, improved support for childcare, elderly care, and single mothers, are essential to attract and maintain women in the labor force.

More services and better care for the elderly

Under China’s 14th Five-year Plan, development of an efficient long-term care (LTC) system is a government priority. Insufficient elderly care facilities result in unnecessary admissions in acute care hospitals and are a waste of health care resources. Improved home- and community-based LTC can address this. Incentives to develop home and community-based services, such as home help, home care, and home nursing services, and center-based services to support older people are critical to meet the “90-7-3 older persons care pattern” launched in the 12th Five-Year Plan (in which 90% of the older persons should receive home-based care, 7% community-based care, and 3% residential care).

More affordable elderly residential care for lower income households that need assistance is part of the solution. These facilities can be funded by a mix of government support, individual pension contributions, and private sector involvement. This approach is emerging in China but needs to be strengthened. These efforts will benefit from a shift in the role of the government from supplier to regulator for the provision of LTC. Examples of government tasks include setting policies and standards, subsidizing those that cannot afford the private facilities, and incentivizing private sector participation, which can engage in effective models of public-private partnerships.

At the same time, incentives and policies to retain and train LTC givers must improve. Professions crucial to a well-functioning elderly care system, including nurses, physiotherapists, occupational therapists, nutritionists, medical specialists (i.e., geriatric physicians, neurologists), social workers, service providers, and managers must expand. The number of professionals in paramedical, medical, social work and elderly care management should also increase. These will result in better care, improved services for the elderly, and significant employment opportunities.

The cost of aging

Addressing the needs of an aging society is costly. Public health care expenditure in China stands at 2.9% of gross domestic product (GDP) compared with a 6.5% average in Organisation for Economic Co-operation and Development countries, where LTC alone amounts to 1.7% of GDP. China has made significant progress in extending health insurance coverage universally, but out-of-pocket payments still account for about half of total health expenditure, exacerbating the vulnerability of lower income households. Expanding health insurance coverage, reducing co-insurance rates, and introduce ceilings on maximum out-of-pocket payments are reforms that have proven effective in other countries.

Increased funding should not threaten fiscal sustainability. A more progressive taxation system, the further liberalization of energy and resource prices, and the introduction of environmental and property taxes would increase social spending without straining public finances. Policy reforms can also help. Affordable social services, higher pensions, and support to women through subsidies for childcare, baby bonuses, child grants, flexible hours, or part-time work, are key to lift fertility rates mitigating the impact of aging.

Gradual increases in retirement age will strengthen labor supply and support the sustainability of the pension system, which is crucial for the success of a multigenerational workforce. During the transition, age-friendly policies, such as more flexible work options, retraining, reskilling, and age-friendly workplaces, are important. Finally, the sustainability of the pension system is critical in an aging society. For that, the introduction of voluntary private pension funds, currently piloted in Zhejiang and Chongqing, needs to progress faster.