Labour, Demography, and the Export-oriented Growth Model in China

In this paper, we argue that the export-oriented growth model in China is an unavoidable choice for China given its demographics and low level of urbanisation. The low dependency ratio and low urbanisation rate jointly determine a large amount of supply of labour and the slow growth of labour income, which in turn leads to the rapid accumulation of capital and the manufacturing sector. However, the two factors also determine a relatively small domestic market, and the only way to clear the market is to export. Judging by the pace of China's demographic transition and urbanisation, we expect that China's export-oriented model will continue up until 2025.