China's Second Demographic Window of Opportunity

Yuan Xin & Zhou Pingmei＊

Abstract: The demographic dividend refers to the process of transforming population advantages into economic ones to achieve rapid growth. The opening and acquisition of a demographic window of opportunity requires corresponding institutional guarantees. Thanks to reform and opening-up, China has opened and reaped its first demographic window of opportunity. As China enters the critical stage of reform and upgrades for economic development, population advantages have been shifting from quantity to quality on a solid basis,marking the opening of our second demographic window of opportunity.Establishing and implementing compatible social and economic policies will be helpful to maximize advantages of this demographic “gift” and modernize China's economic system.

Keywords: Second demographic dividend; population quality; reform and opening-up;economic transformation and upgrading

S ince the launch of reform and opening-up in 1978, China's demographic transitions have led to a declining fertility rate which remains under the population replacement level, a dramatically-changing population age structure and an expanding ageing population group. The country now faces “fake” labor shortages amid its economic and industrial transformation and upgrading. All these sparked discussions over the issue of whether the advantages brought by this demographic dividend in China have faded away. Population transition and economic growth help decrease the increment of the population and improve the quality of the population.In China, new generations of course accumulate human capital better than that of old generations, partly because governments have been investing more year by year in education and medical health, thus laying a better macro base for population quality, and partly because higher household incomes and fewer offspring provide a stable micro base.

Starting with developing a labor-intensive economy, reform and opening-up ushered in a new economic era in China. It gave rise to a rural-urban migration on a large scale, injected sufficient labor forces into the cities for economic growth, and helped the country to reap the first demographic dividend in all aspects. But since entering the new century, our labor-intensive industry has lost its shine. Economic transformations and upgrading make the capital- and technology-intensive and innovation-based economy the direction of the country's development in the future, thus changing the demands for the labor force. The first demographic dividend has slowed because of the declining total workforce, but the second one, relying on human capital, is becoming wider, marked by higher output per worker and that better tallies with increasing economic growth.How to reap the very second demographic dividend lies in the way we apply the younger generations of the work force and improve their quality and productivity.

1. Literature review

Starting in the early 21stcentury, many Chinese scholars established their research on analyzing the increases of workforce resources, and drew conclusions similar to those of earlier studies with respect to elements and conditions of reaping a demographic dividend. However, the fundamental change of the population age structure has shifted the discussions regarding the issue.

1.1 Definitions of two demographic periods

In the mid-19th century, a demographic dividend was proposed as an opportunity window for economic growth. It occurs during a demographic transition when fertility rate exceeds mortality. As the working-age population group expands, its contributions to economic growth will be increased. Bloom along with other scholars held that East Asia's growing working-age population contributed to 50% of its economic miracles,①Bloom,Williamson. 1998.which was then called the first demographic dividend period. However, the “demographic gift” was argued to disappear when many countries, particularly the developed countries, gradually step into an ageing society,in which both the working-age population group and their contributions measured merely by population size become smaller.

In the early 21stcentury, scholars led by Mason established the second demographic dividend period on the life cycle savings theory, i.e. another way to open the demographic window of opportunity. They believed that the decline of fertility and mortality rates pushes up the capital-labor ratio, greatly increases productivity per capita, and offsets some pressures added by an expanding ageing population group.②Mason, & Lee. 2006.

1.2 Domestic study on the demographic dividend

Chinese scholars started their explorations on the demographic dividend in the 21stcentury, and put more focuses on the quantity-based dividend in the early stages. As China gradually steps into an ageing society,the studies have been done in two directions. Some argue that the demographic dividend in China has been weakening, even fading away, while the others believe that China can reap a demographic dividend that will present in quality.

1.2.1 Demographic dividend levels and measurements

A demographic dividend comes during demographic transition when a decline in the fertility rate lags that of the mortality rate. Initially it was measured by the dependency ratio based on the population age structure.In 2004, the United Nations defined the demographic window of opportunity as a period when medium age is under 40 years, the proportion of children and youth under 15 years falls below 30%, and the proportion of people aged 65 years and older is below 15%. Another measurement is when a country's total dependency ratio is lower than 50%.

Cai Fang along with other scholars (2005) stated that from 1982 to 2000 the demographic dividend in China contributed to 26.8% of GDP growth by setting the dependency ratio as a proxy index.①Cai & Wang, 2005.According to Yang Fan (2017), China's demographic dividend started declining in 2015 and its disappearance is expected to come in 2035.②Yang, 2017.But the indexes have been changing as China's population shifts and the country steps into an ageing society. For example, to correct the traditionally-used dependency ratio, Wang Fang (2007)introduced the ratio of the effective consumption population to the effective production population, and argued that inputting the high savings of the ageing population in capital markets can lift productivity per capita and yield a demographic dividend as a result.③Wang, 2007.Yuan Xin along with other scholars (2014) believed that China is opening the second demographic window of opportunity based on analyzing measurements of indexes like human capital, savings, institutions and health conditions, etc. But they predicted more difficulties as reaping success relies more on accumulations of human capital and further reforms of institutions including the labor market.④Yuan & Liu, 2014Also, they pointed out that the second demographic dividend is expected to be realized based on social progress, particularly on the coordination among stock of human capital accumulated by education improvements, industrial structure upgrading, and employment structure improvements.⑤Yuan, Gao & Li, 2017

1.2.2 Population shifts and economic growth

The demographic dividend focuses on transforming population advantages into economic advantages.This is true from the perspective of economics and demography. Nie Huihua along with other scholars (2012)attributed China's three-decade economic growth to a high demographic dividend and a low quality of institutions.⑥Nie & Zou, 2012Li Gang along with other scholars (2016) found that an increase of 1% in workforce quality will bring about a 0.638% increase in technology progress.⑦Li，Liang & Shen, 2016Cai Fang along with other scholars (2011) defined education as an effective way to improve workforce quality and productivity, as an increase of one year of education will contribute 17% to the increase of productivity.⑧Cai.et al, 2011According to Gong Xunzhou along with other scholars (2008), both capital and the workforce keep changing in the context of an ageing society, thus resulting in adjustments of the capital-labor ratio, which makes sustainable economic growth possible.⑨

1.2.3 Demographic dividend and the supply-demand contradiction

As Mu Guangzong (2007) stated, the shortage of migrant workers spelled out the absence of authority guarantees, and migrant workers were deeply frustrated when seeking jobs because the wages were too low, both of which reflected the relationship between labor and capital rather than supply and demand. He believed the issue occurred regionally and in stages, and thus cannot be used to advocate the “disappearance of the demographic dividend” argument.①Mu, 2007.Also, he blamed total supply-demand contradictions and structural contradictions for the huge employment pressure.②Mu, 2008.Li Yining (2017) attributed the shortage to the return of migrant workers, which, born out of the new demographic dividend, equals a quiet human capital revolution as it injects vigor to the rural economy and changes both rural areas and rural residents' mindsets.③Li, 2017.

1.2.4 Literature review

Population is the key to reap a demographic dividend. Economic superiority based on demographic size comes from extensive use of the population. This is also the primary way by which the first demographic dividend has been gained as typically represented by the economic miracles that occurred in East Asia and China. However, as bottlenecks occur in the shift and structural unemployment rises, economic growth will be exposed to the risk of the “mid-income trap.” So, population advantages need to be shifted from quantity to quality to boost the economy one more time, i.e. we need to reap the second demographic dividend. To achieve this goal, we must give full consideration to our superiority in human capital, explore and use its accumulation in a sound manner and increase productivity. In addition to the population factor, reaping the second demographic dividend requires better economic environments, institutions and public policies, which will be discussed in future research.

2. Reform and opening-up was necessary to reap the first demographic dividend

The next demographic dividend will be missed unless population advantages are used in a rational way and relevant social policies are put in place. Thanks to reform and opening-up, China has established better institutions to ensure the introduction of foreign investments, development of non-public sectors and mobility.Also, it has offered excellent opportunities for the country to modernize its economy and provided the key to open the first demographic window of opportunity and reap the dividend.

2.1 Foreign investment invigorated domestic labor market

In the early stage of reform and opening-up, growth was difficult because of China's backward industry and technology. Amid the volatile world economy, China seized the opportunities offered by developed countries which at that time were eager to find markets to replace theirs because of rising costs of the workforce and raw materials. The country made full use of its abundant raw materials, workforce and potential huge consumer market, and attracted multinational enterprises for cooperation in various forms, thus invigorating both the economy and the labor market.

Data source： China Statistical Yearbook (Foreign trade and economic cooperation)

Fig. 2 Employment in public and non-public sectors in China (unit： 10,000 people)Urban Employment Population (Unit: 10,000 people)

In the early stage of the reform, China created economic growth and population aggregation miracles in the Yangtze River Delta and the Delta of the Pearl River. Behind these miracles were low-end and lowprice manufacturing enterprises prevailing in coastal cities in eastern China. These businesses processed raw materials on clients' demands, assembled parts for the clients and processed according to the clients' samples.In the midway of the effort, business orders from overseas companies soared, invigorating huge private capital and yielding economic entities of various forms including joint ventures, individually-run businesses and the self-employed group. These entities demanded more workers, creating a large migration of workforce from rural areas to cities. Since entering the new century, China's economy has been growing on a fast track.But contradictions have become prominent, since rising costs took away advantages that the labor-intensive industry used to be proud of. Plus, more and more foreign investors, such as Adidas and Nike, relocated their China-based factories to other countries. All these led to structural unemployment and frictional unemployment, indicating that the initial form in which we introduced foreign investment is no longer compatible with China's growth.Multinational capital is supposed to enter China in sophisticated forms and therefore requires a labor force of higher and better quality.

2.2 Economic restructuring made non-public sectors a major employer

Economic restructuring has transformed China's planned economy into a market economy,and unleashed the potential of nonpublic sectors and the workforce in rural areas. The reform of stateowned enterprises in the 1990s resulted in a large number of urban redundancies on the one hand but gave more leeway to non-public sectors for growth on the other hand. Over the past four decades, non-public sectors have made great contributions to China's GDP growth and employment markets. For example, from 2000 to 2016, urban employees kept increasing, of whom those employed by public sectors reduced by 29.72 million in total, while those by non-public sectors increased sharply, reaching the number 4.77 times that of the former (see Fig. 2). Plus, the number of people employed by non-public entities in rural areas had a steep rise and exceeded 100 million in total in 2016, comprising the population employed by rural private businesses rising from 1.13 million to 59.137 million from 1990 to 2016 and that by the self-employed from 14.91 million to 42.35 million over the same period.

2.3 Rural reform made workforce allocated by market

Fig. 3 Employment ratio of China's primary, secondary and tertiary industry(unit： %)Contributions made by Primary, Secondary and tertiary Industry(Unit: %)

Fig. 4 Changes of China's mobile population(unit： 100 million people)Mobile Population(Unit: 100 million people)

Under the planned economy characterized by the people's communes, household registration system and food coupons and cards systems, China's rural workforce had been banned from shifting between industries and regions. The rural reforms then removed these old institutional barriers and bans. Particularly the household responsibility contract system, i.e. the contract responsibility system established to link household income to output, became the key to unleash the surplus rural workforce. These efforts caused the labor force to be allocated by the market

Since the 1980s, workforce shifts have occurred from rural areas to cities. From 1978 to 2016, primary industries experienced employment declines on a large scale from 70.5% to 28.8%, while the tertiary industry saw the greatest increase from 12.2% to 43.5%, followed by the secondary industry from 17.3% to 28.8% (see Fig. 3).

The household registration system survived in the reform and yielded a mobile population separating from the household registry. This group expanded quickly from 21.35 million in 1990 to 121 million in 2000, reaching 221 million in 2010, an increase of almost 100 million every ten years. The tendency gradually became flat after 2010 and started declining after reaching 253 million in 2014. It reached 245 million in 2017, 1.71 million less than that at the end of 2016 (see Fig. 4). The mobile population group has made excellent contributions to China's reform and economic growth. The first generation of the group has grown old and gradually retired from the labor market, and the new generation will shore up the second takeoff of China's economy.

China's reform and openingup made preparations institutionally for opening up and reaping the first demographic dividend, since proper policy adjustments transformed the advantages of population into those of the economy. However, as the reform enters a critical period and economic restructuring faces difficulties, barriers occur in reaping a new demographic dividend. In addition to reaping the first demographic dividend, the first and foremost thing to do is to adjust policies to transform into the advantages of population into economic advantages in the new era, of which exploration and use of population quality should be the top priority.

3. Premise of opening the second demographic window of opportunity

The first demographic window of opportunity remains even though it has become smaller. Since reform and opening-up, China has seen great improvements to its population quality thanks to reforms in education,medical care and social institutions. Sparked by the change of workforce quality, policies, institutions and public environments, China is now opening the second demographic window and reaping the benefits. Its discussion, however, cannot be established in the absence of quantity. Discussions over the first demographic dividend have been done proceeding from its supply of an abundant workforce and consumption power,while those over the second proceed from workforce size, structure and quality and look into the way of increasing productivity. The core of the second demographic dividend is how to explore and use available human resources and capital to facilitate fast and steady economic growth amid a reduction of the workingage population.

3.1 The quantity base becomes weaker but still remains

3.1.1 Total dependency ratio rises before 2035 but remains lower overall

Discussions over the demographic dividend amid an increasing ageing population touch on two aspects,one is the rising dependency ratio and the other is the reduction of the working-age population group. Against the United Nations' definition of an ageing society, China had less than 30% children and youth under 15 years after 1988. It also has less than 15% of people aged 65 years and older and a population with a medium age under 40 years, which will respectively remain until 2026 and 2023. Thus, China's demographic window of opportunity will be closed in 2023 when the aforesaid three criteria are met. However, if we adopt the under-50% dependency ratio the demographic window of opportunity in China opened in 1995 and will remain open until 2035, leaving the country at least 15 years to reap the dividend (see Fig. 5). In the early stage of population transition, the children's dependency ratio stayed high because they were merely consumers.Over the last 30 years of the 20th century, the elderly dependency ratio was higher than the United Nations'estimation because they retired earlier. As the elderly keep on participating in society with their savings and have the ability to work, the group imposes a burden less than that of the children. From this perspective,measuring the demographic window of opportunity merely by the dependency ratio leads to relatively large errors.

3.1.2 Total working-age population remains sufficient before 2050

The total working-age population is another criterion for measuring the demographic dividend, and it focuses on supply-demand equilibrium. After 2014, China's working-age population started declining following a slow increase. According to the United Nations, China's working-age population is estimated to remain at the current level if no consideration is given to other factors, and will reach 928 million in 2035, approximately equal to that of 2005. The number will be 814 million in 2050, almost equal to that of 1995. Based on this estimation, China will have abundant workforce over the next two to three decades, with the total not greatly less than that of the first demographic dividend (see Fig. 5).

3.2 Strengthened accumulations of population quality

Improved education and hygienic conditions advanced the accumulations of human capital.Schulz and Becker defined human capital as the knowledge of economic value, the skills and the ability (health conditions) to be present in the worker. They further held that human capital plays a bigger role than material capital in economic growth as its core is improving population quality through education.

3.2.1 Education accumulations grow

Human capital is accumulated based on education. Education reform in China has improved population quality by decreasing illiteracy and adding average years of schooling. First, China's illiteracy remains lower.Illiterates also have remarkable characteristics, i.e. compared to the young and males, the elderly and females have higher illiteracy rates, and more illiterates live in rural areas. Thanks to the reform of education, the total illiteracy ratio to the population born after 1986 (29 years old) was reduced to 0.47%, and the literacy rate reached nearly 100% in cities, about 30 years ahead of villages and towns (see Table 1).

Fig. 5 Changes of total population of different age groups and dependency ratio(unit： 100 million people, %)Population Aged between 15 and 64(Unit: 100 million people)

Table 1 Ratio of illiterates to population aged 15 years and above in 2015 (unit: %)

Second, average length of schooling extends. Based on the sequence of birth, the average length of schooling is 7.86 years for people born in the 50s, 9.01 years for those in the 60s, 9.63 years for those in the 70s,10.74 years for those in the 80s①Yuan & Liu, 2014., and 12.19 years for those in the 90s. If measured by the working population,the average length of schooling increased from 6.8 years in 1990 to 10.5 years in 2018, and the tendency will remain steady until 2030 by an increase of 0.1 year per year.

Third, the young-age group is greatly better than the elderly group in terms of education quality, and therefore offers better human capital. Of the people that hold bachelor's degrees or above, 53.08 million are 20-29, 27.33 million 30-39, 17.06 million 40-49 and 6.94 million 50-59, but merely 5.78 million 60 and older. In the early stage of economic growth, people of higher education better helped China transform its economy into an innovative one. A solid and improved education background plays a positive role in young people's future work and life and offers a pillar to open the second demographic dividend.

Table 2 Education received by population of different age groups in China

Education received by working population has also changed. Over the period of 2006-2016, against the decline in the other groups, a sharp rise was found in the working population who graduated from high school,university and above, of which the population graduated from university and above ranked No. 1 by an increase of 11.5 percentage points, followed by that graduated from high school by 6.6 percentage points (see Fig. 6). It reveals that employers have gradually raised their educational thresholds, and that industrial restructuring will be impossible unless more and more people who have received higher education enter the labor market.

3.2.2 Improved sanitary conditions improve population health

Healthy technologies and sanitary conditions directly affect population health. At the National Health Conference in August 2016, Chinese President Xi Jinping proposed accelerating the construction of healthy China.He further mentioned the strategy and its implementation in his 2017 report at the 19th National Congress of the Communist Party of China,calling for improving national health policies and offering the Chinesepeople all-aspect and lifetime health services. As the strategy requires better medical care conditions, since reform and opening-up the Chinese government has been increasing investments in this regard. These efforts developed medical and health services and laid a solid foundation for implementing the strategy and improving population health, thus effectively opening the second demographic window. From 1997 to the end of 2016, the total spending on health services rose from 319.671 billion yuan to 4.634488 trillion yuan,an increase of 14.5 times, with per capita health expenditure reaching 3,351.74 yuan. As residents' awareness of health grows, the per capita health expenditure for urban households reached 1,063.7 yuan in 2012, nearly 2.5 times higher than the number 10 years before.

Fig. 6 Education received by working population in China from 2006 to 2016

Fig. 7 Changes of mortality rates from 2000 to 2016

Medical care is an immediate factor for declining mortality rate and lengthening life expectancy. Statistics showed that maternal mortality rate, neonatal mortality rate, infant mortality and under 5 mortality rate all fell sharply, of which maternal mortality ranked No. 1 declining from 53‰ in 2000 to 19.9‰ in 2016. The other three mortality rates also declined greatly, while survival rate rose (see Fig. 7) and the impact of the ageing population on total mortality rate increased slightly. The average life expectancy was extended substantially,reaching 74.83 years at the end of 2010 and 76.5 years in 2016. It is expected to exceed 77.3 years in 2020 and 80 years for both male and female in 2050 (UN, 2017). So, how to explore and make full use of the healthy elderly is another key to opening the second demographic window.

3.2.3 Elderly human resources and capital strengthened

China has abundant elderly human resources that contain quality human capital. In the next 10 years, 160 million people born between 1959 and 1968 will grow old. Though they experienced the three-year difficult period (1959-1961), the Great Cultural Revolution during their teen years, these people are prone to accept the new thanks to reform and opening-up that occurred in their adulthood, which made them better human capital than their parents. Speaking of education, the group received an education of 9.01 years in average, while those born between 1949 and 1956 7.86 years. Based on this, the elderly that reached 60 years in 2018 offers available but limited human capital.

A total of 440 million people, comprising 230 million born between 1969 and 1978 and 210 million between 1979 and 1988, will grow old respectively from 2029 to 2039 and from 2039 to 2048. Born in the age of peace, they have witnessed economic booms worldwide, live in the world structured by internet and information technologies, and enjoy fast-developing medical care services, unprecedented accumulations of education, personal savings and health. They will grow old at the time when the first demographic dividend disappears as estimated by scholars and become the pillar of the second demographic dividend to fill the shortage. As Yuan Xin (2012) said, there will be 100 million people added to the workforce from 2015 to 2050 if the retirement age is raised to 65.①Li & Tian, 2010.

Table 3 Life expectancy of different age groups in China

3.2.4 The innovation-driven development strategy

According to Xi's report at the 19th CPC National Congress, innovation is the primary driving force behind development and the strategic underpinning for building a modernized economy. As the report stated, “We will improve our national innovation system and boost our strategic scientific and technological strength.” Also, changing economic policies, volatile trading conditions and rising technical input all call for talents that possess high technologies, innovative and strategic mindsets. So, the labor market will of course demand a quality workforce.

The “Belt and Road Initiative” has been pushing ahead China's “going global”, and upgrading the country's trading sector, which used to export primary products and raw materials in the early stage of reform and opening-up. Since entering the new era, China's export volume has been rising on an ongoing basis. The country needs to export more manufactured goods, and domestic enterprises need to be more competitive in foreign trade by adding more technical content and value to their products. To achieve these two goals, increasing technical input and fostering innovative technical personnel are quite essential.

R&D expenditures are a key index to monitor China's capacity for indigenous innovation and implementation of the innovation-driven development strategy. In 2017, the index increased by 11.6% to 1.75 trillion yuan, accounting for 2.12% of the country's GDP. Technological innovation benefits from R&D capital investments carry a big weight in building an innovation-oriented country. Research showed that an increase of 1% R&D capital will increase approximate 0.1% output.①Li & Tian, 2010.However, there has been a big gap between sharp increases of investment and shortages of R&D staff. China lags the international community, particularly many advanced economies whose R&D workforce size is at least twice as big as China's.②Ministry of Science and Technology of the People's Republic of China.As the key carrier of knowledge, the R&D staff is the essence of technological innovation and the powerhouse of an innovative economy. From this point of view, expanding the size of the R&D staff and adjusting its structure are quite essential.

4. Opportunities and conditions for opening the second demographic window

4.1 Economic restructuring and the second demographic window help each other forward

As President Xi's report at the 19th CPC National Congress stated, “China's economy has been transitioning from a phase of rapid growth to a stage of high-quality development. This is a pivotal stage for transforming our growth model, improving our economic structure, and fostering new drivers of growth. It is imperative that we develop a modernized economy. … We must put quality first and give priority to performance. … This will steadily strengthen the innovation capacity and competitiveness of China's economy.” However, China still has prominent problems in its economy,such as poor capacity for scientific and technological innovation and an irrational industrial structure as stated in the report at the 18th CPC National Congress. Also, as the Made in China 2025 pointed out, China has a big but not strong manufacturing industry, poor capacity for indigenous innovation,heavy reliance on foreign countries for core technologies and high-end equipment, as well as a notyet-improved innovation system. The country also lags far behind advanced economies in indigenous innovation, efficiency of resource utilization, industrial structure, information technology and quality performance, etc., thus making economic restructuring and leapfrog progress imperative and arduous.Plus, the service sector needs to be improved for better quality, and a high-end and hi-tech service industry needs to be established.

Now the “middle income trap” exposes China to other risks. Whether the country can be enlisted in developed economies over the trap depends on its successful economic restructuring practice amid slowing economic growth. Fostering and developing an innovative and technology-based economy therefore becomes the first priority. Without a quality population, there will be no way to improve economic performance or build an innovation-oriented country, let alone economic development amid restructuring that hinges on a workforce of better quality. To achieve these goals and secure the second demographic dividend, China must make full use of its current accumulations of education and capital, make more technological innovations and increase output per capita.

4.2 Policy for expanding the second demographic window of opportunity

The second demographic dividend will not exist in the absence of the first one. If reviewed from the time dimension, the first demographic dividend has become weak but remains, while the second one is accumulating strength for a takeoff. Only by combing these two can we maximize their benefits.

4.2.1 Unleash the first demographic dividend by adjusting the employment structure.

Advantages brought by the first demographic dividend have been reduced as the increase of the workingage population declines. But they are still there and expected to offer a sufficient workforce for 20 to 30 years to come. As stated by the 2018 Report on the Work of Government, around 13.51 million new urban jobs were created in 2017, and more than 11 million more were planned for 2018. However, 13.49 million graduates enrolled in 2016 will file their first job applications between 2018 and 2019 after graduating from universities (undergraduates and postgraduates), junior colleges, secondary vocational schools and technical training schools. This outnumbers the demand of current employment, and therefore may result in a higher unemployment rate and insufficient use of human resources.

Table 4 Graduates and admissions of schools at all levels in the last decade (unit: 10,000 people)

To address this issue, it is necessary to adjust the employment structure, increase market vitality and make full use of the available workforce. First, it is suggested we improve the entrepreneurship system and offer support with relevant policies and technologies, bring better order and flexibility to the employment market and startups. Second, employment market development plans should be made for different groups within the population, such as creating more jobs through industrial upgrading for university graduates, giving guidance with policies and institutions to change the mindset of employment. Also, to achieve full employment and resolve labor shortages in some areas, it is suggested to reduce drawbacks caused by the mobility of the workforce for better shifts.

4.2.2 Make strong moves across the board to reap the second demographic dividend on a solid basis

First, improve the education system and establish lifetime vocational training.

Education provides a solid base to achieve national prosperity and strength and improving population quality holds the key to securing the second demographic dividend. A relatively improved education system has laid a solid foundation for China to reap the second demographic dividend, however, the goal has been constrained by a prominent imbalance between education and industry amid economic development. To address this issue, China needs to establish a training system relying on existing accumulations to make up the deficiency of general education, reorient the system by establishing and improving vocational education and training institutions to serve economic and industrial development. Also, the country would be wise to set up lifetime training mechanisms to provide education without age limits.

A balance must be achieved, and inequalities must be eliminated between cities and rural areas in education. Academic and employment development systems are suggested to be put in place relying on general education to serve economic and industrial growth. Efforts should be made to strengthen cooperation between enterprises and schools, including setting up learning bases for college students to gain work experience. Enterprises, particularly hi-tech companies, are suggested to proceed from their own conditions and work with colleges to foster high-caliber talents. Also, it is suggested to focus on fostering talents that have innovative mindsets, improve the innovation and creation capability of the whole nation, and foster scientific and technological personnel and leaders that have strategic mindsets, young scientists and technicians, as well as high-level innovation teams.

Second, establish a new employment model based on population characteristics

Because of higher labor heterogeneity based on population quality, it is imperative to set up an employment model that takes talent as the foundation and conforms to population characteristics. According to the Made in China 2025, scientific and wide-ranging institutions must be established and improved for personnel screening, recruitment, education and training, and efforts must be made to speed up fostering talents that possess professional technologies, business operations and management skills and other special skills. Also, China needs to do more to encourage startups and innovations nationwide, reduce institutional barriers to facilitate employment of entrepreneurial and innovative talents. As more people grow old, efforts need to be made to train the elderly and enable them to participate in social and family development. Special and technological personnel should be encouraged to raise their retirement ages to make more contributions to science and technology research, academic exchanges and consulting services.

Structural imbalance exists between education and industry development. The manufacturing industry will have been greatly improved overall by 2025 thanks to substantially strengthened innovation capacity and all labor productivity. This, however, will inevitably push structural unemployment to a higher level and cause a mismatch between human resources and industrial development. At present, job seekers have difficulties in employment, while businesses, particular those engaging in secondary and tertiary industries, have problems in hiring satisfactory employees. So, to better match the workforce and industrial demands, governments,enterprises and educational institutions are encouraged to coordinate with each other based on realities while looking to future needs.

Third, use artificial intelligence to replenish the first demographic dividend

The gaming between quantity and quality in the population told us that quantity can be replaced to some extent if quality reaches a certain level. As suggested by the Made in China 2025, leading enterprises should be relied on and efforts are expected to be made to make key procedures intelligent, replace personnel at key job positions with robots, optimize and control production in an intelligent manner, and build smart or digital workshops in key areas. Also, efforts should be made to create new production methods, industrial forms,business models and economic growth areas to deeply integrate new-generation information technologies with the manufacturing industry. With increasing applications of intelligent production platforms and information technologies in the manufacturing industry, we will unleash more manpower to relieve the impact imposed by the decline of the first demographic dividend. Economic growth and innovation-driven development will have more reliance on hi-tech industries. As rapidly emerging new growth drivers, science and technology are reshaping China's growth model, are profoundly changing the way we live and work, and have become a new hallmark of China's innovation-driven development.

It is beyond question that objective principles have caused the first demographic dividend to decline,but the second demographic window is opening in an objective reality. In nature the two are the result of the use of the population. Policy support can activate population advantages to produce dividends. Based on this, China needs to tailor policies to its abundant accumulations of human capital, including making wellstructured preparations for fostering potential human resources, improving workforce quality and using the population group that is available for exploration. It also requires coordination and efforts to be made in all aspects to extend and reap the second demographic window, which is a golden opportunity for the country's development. For this purpose, we need to expand and maintain an education system matching industrial development, a financial and capital market developed in all aspects, a fair and inclusive employment market,improved social security institutions, flexible retirement policies, as well as an environment without mobility limits.