Feb. 16 (Bloomberg) -- Helen Qiao, an economist at Goldman Sachs Group Inc. in Hong Kong, posed an interesting question this week: ``Will China grow old before getting rich?''

Qiao's research shows that China's dependency ratio -- the number of people too young and too old to work divided by the working-age population -- will start rising at the end of this decade and approach 50 percent in 2030, from less than 40 percent at present, making China as gray as Japan was last year.

By 2050, every 10 Chinese workers in the age group of 15 to 64 will support a total of seven younger and older people -- a dependency ratio of 70 percent.

An aging society may be an inevitable part of demographic transition, though ``what makes China's case unique is that the sharp rise in dependency ratio will arrive earlier in terms of per capita income level relative to other countries,'' Qiao says in her report.

In 2030, China's annual per capita income will be a little more than $11,000 measured in current prices, compared with almost $36,000 in Japan last year, according to Goldman Sachs's estimates. South Korea's dependency ratio will approach 50 percent in 2025, with its citizens earning $52,000 a year.

Does it matter if China gets old before it gets rich? It does, for a number of reasons. First, economic growth rates taper off with aging: It's difficult for a developing nation to get rich after its population has already grown old.

Second, aging will put further stress on China's underdeveloped pension system as an increasingly smaller cohort of workers gets saddled with the responsibility of sustaining a growing number of retired people.

Saver and Savior?

A third reason is that as European nations and Japan age further, their governments may have to raise tax rates to transfer incomes from the workers to the retirees. That will create a shortage of capital.

Hans Fehr, a researcher at the University of Wuerzburg in Germany, and others said in a paper last year that China will become the ``world's saver, and thereby the developed world's savior'' by supplying capital. If China itself gets old quickly, that prognosis might not come true.

China's rapid aging is partly because of the one-child norm the government began implementing in 1979 to control the population. Thanks to that policy, the pre-1978 Chinese baby boomers, when they entered the workforce in the 1980s and 1990s, had fewer young dependents to care for than the previous generations.

That bulge in the number of working-age people relative to the population, or China's ``demographic dividend,'' contributed 15 percent to the economy's growth from 1982 to 2000, according to United Nations estimates.

Migration

The dividend will now turn into a deficit, Goldman Sachs says. As China's baby boomers start retiring, there won't be enough young Chinese entering the workforce to make up for the shortfall.

To ensure that economic growth doesn't slacken for lack of workers, the Chinese government should end the one-child policy and scrap controls on migration from rural to urban areas, Goldman Sachs economist Qiao says.

According to her calculations, from 98 million to 128 million Chinese agricultural workers are surplus; allowing them to move freely into urban areas will increase the supply of productive labor without any drop in economic output.

With these two changes in policy and with more emphasis on education, China may be able to increase its citizens' average income to $21,000 in today's prices by 2030, Goldman Sachs's model shows. That would still be significantly lower than Japanese income levels last year.

Data Blues

The trouble with demographic projections for China is that the quality of published census statistics is suspect.

Wolfgang Lutz, who runs the population-research program at the International Institute for Applied Systems Analysis in Laxenburg, Austria, is studying the range of uncertainty in China's future population trends. Lutz and his colleagues have identified at least 32 different estimates for the current fertility rate in Chinese women.

The official version is that each Chinese woman is giving birth to 1.2 children. Estimates compiled by Lutz show the actual number could be as high as 2.3 children. Such uncertainty in the Chinese data makes it difficult to say anything with confidence about the structure of the Chinese population in 2030 or 2050.

While the one-child norm is strictly enforced in urban areas with a carrot-and-stick policy, it has been less of a success in rural areas for cultural and economic reasons. In the late 1980s, the government started allowing rural couples to have a second child if their first-born was a girl.

Rich First, Old Later

Many girls in rural China are unregistered because their parents don't want to lose their chance to produce a male heir. The gender ratio is now close to 120 boys for 100 girls. Some of the imbalance may be real; another part may be a result of under- reporting female births.

Fertility rates closer to 2, or even higher, appear to be more realistic for an economy where it's hard to save for retirement because the financial markets are underdeveloped and children remain the primary source of old-age security.

If the pace of graying isn't as fast as the statistics suggest, then it's quite possible that China will get as rich as Japan is today before it gets as old.

To contact the writer of this column: Andy Mukherjee in Singapore amukherjee@bloomberg.net .