Demographic reason why China may fail its industrial transformation

China had its five-year plans laid out for a few future decades to speed up the industrial transformation from a country focused on high-pollution low-profit export-oriented manufacturers to a country of high tech industry with self-reliant intellectual properties. A lot of people have talked about the potential challenges and opportunities for breakthroughs lurking in China’s social and economic landscape. I am not going to repeat the cliché of structural economic disadvantages and the political roadblocks needed to clear for an industrial upgrade. There are plenty of such studies already. Indeed, it now looks like China has achieved some near-term goals of upgrading the industry by having developed some middle-level micro-chip technologies and independently made a few aerospace parts.

The problem I’m talking about, as a socioLoList would be naturally intrigued, is the lack of a highly-educated population in the future due to pure demographic issues. The first problem is emigration and brain drain, but I believe this is reversible and is problematic only on a minor scale. The second problem and the main one, relates to how educated women refuse to bear babies, which cut off the intergenerational transmission of the cultural capital required for competent education.

Although not as grave as the brain drain issues of some countries like India, every year since 2010 about 600,000 Chinese students went abroad for education, mainly in the English-speaking countries, but on average only 400,000 to 500,000 returned to China per year. For a country that will soon see net negative population growth, the exodus of 100,000 labor force with tertiary education brings a tremendous loss to the skill set of the country, hampering its capability to develop technology-based industrial innovations. Constant and consistent emigration of highly educated middle class at such a scale, although small compared to the population size of China, causes what demographers call a mechanical population movement. When people don’t stay, the place they left behind cannot utilize the brainpower and labor power that was also left vacant.

The greater problem has to do with the rate at which the subpopulation that produces the needed high-skill labor reproduces itself, namely, fertility among the highly educated. To build a technology-based industry and fulfill industrial upgrade to the one that creates products of high added-value, you need a capable workforce whose knowledge and skillset comprise of some advanced level of knowledge in the fields of STEM and foreign language. The detailed knowledge and skills in this skillset typically are taught and trained during tertiary education that includes professional education and college degrees. Whether it’s vocational training or university education, an advanced skillset beyond secondary school is usually a necessary condition for technology innovations.

However, there is a considerable shortage of high-skilled labor force in China. Depending on the target of the industrial upgrade, the size of the high-skilled labor population is highly contingent and flexible, and we do not have an estimate at hand. But a report funded by JP Morgan and conducted by Fudan University showed that the proportion of skilled labor force makes up only 19% of China’s total labor pool and only 5% are the so-called high-skilled labor, who at least received some professional training or tertiary education. A different report from the OCED website claimed 9.7% of China’s labor force had tertiary education. Among the OCED countries, this percentage is as high as 51% (Luxembourg) and the OCED average is 39%, almost four times that of China. This means China needs to at least double its size of the highly educated labor force in order to catch up with the lower end of other countries that have successfully transitioned to an advanced economy. Or, some may argue that China already has enough highly educated population given its huge overall size, so the scale effect is sufficient for the industrial upgrade. This may be the case if the desired technology can be simply aggregated from the population mass. For innovation, structural change in the composition of labor quality of the entire population eclipses the mere number of intelligent individuals.

The current shortage of high skill labor force is only the start of the problem. The real issue and my concern are that the population of the skilled labor force in China may have a hard time seeing any growth due to the attrition of this population caused by high-education women having very low fertility rates. Women of higher education having low fertility rates is a common scenario in other East Asian countries such as South Korea and Japan. However, these countries already have a sizeable proportion of the highly educated labor force, but China does not. A study published in China’s leading demography journal by Wang & Wang (2020) showed some jaw-dropping gaps in fertility by educational attainment in China. In 1982, only 0.6% of fecund women have tertiary degrees, 34.3% of them do in 2015. However, the average parity (number of China) among women with tertiary education is only 0.84, and less than 1% of them have a second child. Although lower than the replacement level of 2.1, women with elementary education have almost doubled the fertility level of their highly educated counterparts at a parity of 1.59. Take the U.S. for comparison, the CDC report indicates American women with a college degree have a total fertility rate (TFR) of 1.3, but the TFR increases among women with the master’s and doctoral degree to 1.4 and 1.5 respectively. Higher fertility among the most educated women, this phenomenon is a rarity for China. Among 15 European countries too, Nisén et al demonstrated that the average TFR of women with tertiary education is as high as 1.62, which basically doubles the parity number of Chinese highly educated women. The differential of fertility between the least and most educated women in Europe is only 0.36, but Chinese highly educated women have 0.75 fewer children than the least educated women.

In a country with a shrinking population, having a low fertility rate in a particular group of certain socioeconomic status appears trivial and normal. But for a country that aims to upgrade its industry by a significant portion of reserved labor with an advanced skill set, having an extremely low fertility rate among the educated women means that this highly educated demographic group cannot socially reproduce itself.

Schools teach skills and detailed knowledge points, but family is the primary unit for socialization that transmits the cultural capital and intangible set of behavioral and attitudinal resources required for success in higher education. Ever since the Coleman Report, the family’s effect on educational performance surpasses the school effect. Literature in the sociology of education talks about concerted cultivation basically delineated how careful and sophisticated parental involvement in a child’s education leads to better educational attainment. Only parents have the motivation and energy to consistently carry out concerted cultivation of characters and behavioral codes, along with skills and knowledge. Pierre Bourdieu also has some good works on how cultural capital is reproduced within the family institution and paves the way for future job market success. Shamus Khan’s works on elite students also touched base with the familial transmission of elite conducts.

Now we even have quantified estimates that pin education inheritance from mothers to children at a magnitude of 0.76. This means, for every one more year increase in the mother’s education, the child’s education level increases by 0.76 years. In real-world situations, a mother who has completed college would typically have 16 years of education, then her kids would have 16*0.76=12.1 years of education. In comparison, a mother who completed only high school would reproduce a kid who is going to have only 12*0.76=9 years of education. Alternatively, we may consider 0.76 as the chance of inheriting the mother’s educational level. The quantitative social science, coefficient of 0.76 is pretty strong. When you subtract 0.76 from a perfect inheritance of 1, the resulting 0.24 means the chance that a person attained a different educational level from the mother. For the least educated mother, since they cannot go lower, their kids have a 24% chance to rise up in education. For moderately educated mothers, since both the floor and ceiling exist, their kids have less than a 24% chance to become highly educated. Let’s just assume the probability of downward and upward mobility in education is the same, then moderately educated mothers would have a 12% chance to see their child become the highest-educated.

The above scenario is what happens in the stratified society: people can go up, but the chance is slimmer than inheriting their parents’ positions. Put the number into population-level, only 12% of the children born to moderately educated mothers can rise up to attain the highest education. For a country like China, desperate for a tech-savvy labor force, incubating future workers from the lower-education strata of the society poses a severe challenge based on the numbers alone. Strong intergenerational inheritance simply multiplies the difficulty of doing so. Suppose you have 1 million moderately educated parents, who then bear 1 million children, only 120,000 of these kids are going to college. However, if you have 1 million highly educated parents who also bear 1 million kids, 740,000 of these kids will attend college. Based on intergenerational inheritance and the self-initiated mechanism of cultural capital transmission, the high-education strata will produce six times the high-education offspring than the moderate education strata.

The problem is, in China, the high-education strata simply does not reproduce itself with such a low fertility rate. Assuming the laws of hypergamy and homogamy that dictate women to marry someone with similar or higher social status, the husbands of women with tertiary education would also need to have tertiary education, so they form a high-education family. For a parity of 0.8 among Chinese women with tertiary education, every such high-education family has a demographic survival rate of 40%: there were two persons in the first generation, but only 0.8 person is left in the second generation. Multiply this attrition by intergenerational inheritance rate for the high-education strata: 0.4*0.76=0.3. Only about 30% of the high-education strata will survive to the second generation, and the reinforcement arriving from the moderate-education strata who have experienced upward mobility to become highly educated is simply too small to make up for the loss.