Beijing’s latest census data suggested China’s population peak will arrive earlier than expected, sometime within the current decade, and that China’s demographic changes will have significant implications for the economy’s long-term trajectory and the future pace of growth. This note discusses the impact of demographic changes on China’s fiscal situation, particularly in terms of China’s underfunded pension obligations and the consequences for local government investment. The demographic shift reduces China’s future scope for fiscal stimulus to counter cyclical slowdowns in growth. Postponing the retirement age is probably the only effective method to address the growing shortfalls in pension funds, but faces considerable opposition from officials within the Communist Party and the public.
