1 Population Ageing, Labour Market Reform and Economic Growth in China- A Dynamic General Equilibrium Analysis

The one-child policy implemented since the late of 1970s has decelerated the growth of China’s working age population since the 1990s. From 2015, this growth will turn sharply negative, resulting declining labour force in China. This has caused concerns over the long-term prospects of China’s economic growth. China is at a cross road regarding its policy directions. Should China relax its one-child policy? This paper shed lights on the view that a more efficient allocation of labour between sectors is likely to be a better option than an increased fertility rate – the latter leads to a lower per capita income. Using a dynamic CGE model of China, we analyse the effects of removing labour market distortions that hinder the movement of labour from agricultural to manufacturing and services sectors. By removing the discriminations against rural workers in urban area, China can enjoy continued growth in its manufactured exports even with a slower growth in its labour force. The positive growth effects of facilitating the movement of labour from agricultural to other sectors will help to mitigate the negative effects of the declining labour force on China’s economic growth