Commentary: COVID-19 is creating some awkward moments for the Chinese dream

Three good examples are the challenges of ageing in a system with strong rural-urban cleavages, inefficiencies and risks in the financial system, and the need to reform and modernise the international economic architecture.Rapid ageing is probably the single biggest challenge that China faces domestically. The Chinese population over 65 will increase from about 200 million today to 400 million by 2049, while the overall population declines slightly.

Most of the elderly live in the countryside, though often their working-aged children have moved to cities as migrant workers, and frequently leaving school-aged children behind. Keeping this group and the “young olds”, aged 65 to 85, healthy and active is China’s best hope for staving off dramatic labour force decline.

Now that China has reached middle-income status, it will need to depend less on investment and more on innovation and productivity growth.But the bank-dominated financial system favours lending to state enterprises, which have lower productivity and are less innovative than the private sector. The playbook for financial reform is well-known: Carefully introduce more flexibility into interest rates and the exchange rate; license more private financial institutions, both foreign and domestic; and turn to capital account liberalisation last as this is the most difficult.China’s ability to meet its social and economic goals will also depend on the international environment and economic architecture.

Meanwhile, the US has withdrawn from the Paris Accord; China and Western donors have separate and competing programmes to finance infrastructure in the developing world; and most glaringly in the current situation, the World Health Organization needs to be strengthened, not weakened.

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