Economic Implications of New Retirement Age in China - a Dynamic Computable General Equilibrium Analysis

Xiujian Peng, Centre of Policy Studies, Victoria University
Xuejin Zuo, Shanghai Academy of Social Sciences
Xin Yang, Shanghai Academy of Social Sciences
Meifeng Wang, Shanghai Health Development Research Centre, Shanghai, China

This paper applies a dynamic computable general equilibrium model of the Chinese economy, CHINAGEM, to assess the impact of China’s newly announced retirement age extension on economic growth and pension sustainability from 2025 to 2100. CHINAGEM incorporates China’s pension system and an innovative labour market module that captures the country’s unique labour mobility characteristics. In the baseline scenario, we assume the retirement age remains unchanged, with population projections based on the United Nations 2024 medium-variant forecast. Under this scenario, China’s pension account will likely accumulate significant debt due to rapid population aging and a shrinking labour force, creating substantial pressure on the government budget. In the policy scenario, following the detailed retirement age extension plan, China gradually raises the retirement age to 63 years, starting in 2025. We analyze the implications of this policy for the pension system, macroeconomy, industry output and employment. We expect that extending the retirement age will support economic growth and reduce pension-related financial strain. However, the scale of the positive effects will depend on how much labour force participation among older workers increases. A well-designed, carefully implemented policy is essential to maximize its benefits.

Keywords: Computational social science methods, Population Ageing, Population Policies, Population and Development

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