China recently reduced its target for real GDP annual growth to 7.5 percent from 8 percent. That target is probably too high as China’s one-child policy leads to a population decline, especially among new labor-force entrants. The number of 15- to 24-year-olds is already dropping and this group is projected to account for 150 million people in 2030, compared with 250 million in 1990. As a result, China’s labor force between the ages of 15 and 65 is expected to peak in 2014.
China’s ample labor has increased GDP growth by an estimated 1.8 percentage points annually since the 1970s, but the contraction will cut into growth by 0.7 percentage point by 2030. At the same time, better conditions in rural areas have reduced the availability of cheap labor in coastal cities.
By contrast, India has had no effective constraints onpopulation growth. China still has the advantage — with 1.34 billion people last year, compared with India’s 1.24 billion –though not for too much longer. Furthermore, the age distribution of India’s population is better because of China’s one-child policy, which is now being reconsidered in view of its negative consequences for the country’s long-term labor force and economic growth. This means that the dependency ratio, the proportion of children and senior citizens to working-age people, is expected to continue falling in India in coming decades and to increase in China.