Photo: AFP

China’s looming demographic crisis is about to hit its government’s pocketbook where it hurts – the country’s primary pension fund system.

According to new research from the Chinese Academy of Social Sciences, the urban worker pension fund will be tapped out as soon as the year 2035 if not reformed, as the share of working-age population steadily declines.

If the current trend was extended out to the year 2050, the balance of contributions and outlays for the fund would plunge into the red by US$1.64 trillion.

Concerns about China’s declining birth rate have grown in recent years, as government efforts to relax restrictions on how many children couples are permitted to have, along with incentives to encourage more births, have not slowed the trend.

One obvious option being considered to help ease pressure on the pension fund is to raise the retirement age, which is currently 60 for men and 55 for women.

There is a tension between shoring up the pension fund and recent stimulus efforts aimed at boosting employment, which include a decision to cut mandatory employer contributions from 20% to 16%.

China is following a familiar script as it reaches a new stage in its economic development, reminiscent of the experience of Japan and South Korea.

But China’s case is unique in that it has been exacerbated by a nearly four-decades-long policy restricting families to one child. The “one-child policy” has been credited by some scholars as bringing a decline in fertility to China decades earlier than would have occurred naturally.

The family planning restrictions were relaxed in 2015, but the birthrate has continued to plummet since.

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