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Section: Closing Views
In ten years, the country's demographics will probably look very different. How should the government and business respond?

Amid the celebration of China's economic success during the past two decades, one factor is frequently overlooked: favorable demographics. Population trends have supported the enormous expansion of the country's manufacturing base and have driven extraordinary consumption growth in sectors such as real estate and household electronics. In recent years, the emerging middle class has unleashed a wave of spending on health care, education, entertainment, and travel. The Chinese still save huge sums — totaling nearly 40 percent of the gross domestic product — but a gradual decline in the savings rate has by itself contributed an incremental 1 to 2 percent in recent GDP growth.

More and more two-career, childless middle-class couples have far bigger incomes and much higher expectations than their parents did, and these young people aren't shy about spending their newfound prosperity. China's middle-class urbanites have poured money into homes, cars, and vacations, thereby making it the world's largest market for many consumer goods, from beer to mobile phones to TVs, as well as the fifth-largest auto market. One indicator of this segment's buying power is its impact on residential-construction patterns and therefore on builders. In urban China, the average household size dropped from 4.0 in 1984 to 3.1 in 2003. Over the same period, the amount of living space per person increased — in Shanghai, for example, to 15 square meters (about 161 square feet), from 5. Pent-up demand for new apartment buildings has helped turn China into the world's top consumer of steel.

But the population is beginning to age, especially in urban areas, with important implications for business. While an aging population offers opportunities in sectors such as financial services and health care, the growth of consumer spending could slow down. New migrants from the countryside may take up the slack in the cities, but that's far from assured. And the implications of an aging China could be still more important for government policies on job training, health care, and pensions.

As today's bulging numbers of young people move into their late twenties and thirties, the expense of raising a family (tuition, health care) and the need to save for retirement will begin to bite. Budgets for middle-class households are likely to come under pressure on all fronts. More middle-class parents will retire without a meaningful state pension, relying instead on their savings or their children. In addition, if current trends continue, more middle-class mothers will opt out of the workforce to have families, further diminishing the earning and spending power of the upwardly mobile urban population. In Shanghai, a bellweather for the nation (much like California in the United States), women made up 28 percent of the workforce in 2002., down from 33 percent in 1995.

Other numbers are challenging as well. Urban 20- to 39-year-olds undertake most of the manufacturing and construction work that has fueled so much of China's recent economic growth. Their share of the total population, which rose from 29 percent two decades ago to 34 percent in 2002, will fall back to 30 percent by 2012. Over the same period, the proportion of China's population aged over 50 will increase to 29 percent, from 22 percent, and th