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Mark W. Frazier and Yimin Li

It is commonly said that China will ‘grow old before it grows rich.’ This has become a shorthand way of predicting that China, as a developing country, lacks the resources necessary to support an ageing population. But this truism overlooks an important development that might well alleviate the challenges of an ageing population: China is urbanizing rapidly as it grows old. This chapter examines the literature on China’s demographic change and the possible effects on China’s economic growth and social institutions, among other far-reaching consequences. China’s demographic transformation is inevitable, but the effects of this transformation are not. A shrinking labour force means an expanding elderly population will not, in and of itself, drag China’s economy into long-term stagnation. Instead, the effects of ageing will hinge on other factors, such as productivity growth and urbanization. The central argument of this chapter is that urbanization holds out the possibilities of reducing the status and income divides between urban and rural citizens. Bringing pension rights to rural residents, and at levels commensurate to those now enjoyed by the urban population, will create new streams of both fiscal and political support for the nascent pension and healthcare systems. Broad-based inclusion of the population in these programs would mitigate the fiscal challenges posed by population ageing.