supply projected by the model - decline gradually from 2 percent a year in 2010 to 1.2 percent in 2050, which seems consistent with recent estimations of TFP growth in China.

The results from baseline calibration also show that with the population growing at a decreasing rate, the Chinese labor force stops growing between 2015 and 2020 and declines afterward; however, the age group 65 and over continues to grow. Thus, the old age dependency ratio will rise steadily from 11 percent to reach 25 percent in 2030 and 36 percent in 2050 (Figure 2). The system dependency ratio will remain as high as 30 percent today, meaning that three workers support one retiree, and will rise rapidly to 68 percent in 2030 and 79 percent in 2050. At the beginning, the PAYGO system has a tiny surplus of RMB 0.6 billion in 2000. The gap between pension fund revenue and expenditures will widen significantly. The accumulated reserve will become negative during the next few years and decreases RMB 1027 billion by 2050 (table 6). Obviously, this annual deficit will have to be financed by taxation or issuing debt, which threatens to fiscal stability and makes China's future economic development uncertain.

Table 6. Baseline calibration

||1995|1996- 2<br>2000|001-05|2006-10|2011-15 2|016-20 2|021-25|2026-30 2|031-35|2036-40|2041-45 2|046-50|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Exogenous specified variables|||||||||||||
|GDP||8.16|7.23|6.78|6.33|5.88|5.43|4.98|4.53|4.08|3.63|3.18|
|Life expectancya||70.30|70.57|71.72|72.49|73.28|74.11|74.97|75.87|76.86|76.86|76.86|
|Total fertility Rate'||1.900|1.900|1.948|1.994|2.04|2.084|2.127|2.145|2.135|2.135|2.135|
|Replacement rate ( percent)|65.8|60|60|60|60|60|60|60|60|60|60|60|
|_Calibrated results-_<br>Macroeconomic trends|||||||||||||
|Growth rate ( percent)|||||||||||||
|Total absorption||8.97|7.61|7.01|6.47|5.97|5.48|5.01|4.55|4.09|3.64|3.19|
|Investment||10.37|8.27|7.40|6.62|5.92|5.27|4.69|4.15|3.65|3.16|2.69|
|Private consumption||8.13|7.16|6.69|6.31|5.98|5.62|5.24|4.84|4.41|3.97|3.52|
|Government revenue||8.46|7.21|6.35|5.82|5.44|5.10|4.72|4.33|3.92|3.51|3.07|
|Govemment saving||7.62|0.51|2.45|8.83|7.82|6.34|5.51|4.76|3.61|2.79|2.18|
|Labor force||1.14|1.29|0.75|0.22|-0.02|-0.14|0.01|-0.14|-0.39|-0.36|-0.10|
|Capital stock||10.10|9.58|8.67|7.84|7.09|6.40|5.77|5.19|4.65|4.15|3.68|
|TFP||2.21|1.50|1.78|2.01|2.07|2.05|1.87|1.80|1.75|1.56|1.24|
||1995|2000|2005|2010|2015|2020|2025|2030|2035|2040|2045|2050|
|Ratio to GDP ( percent)|||||||||||||
|Investment|39.7|39.7|38.9|38.2|37.4|36.6|35.9|35.1|34.3|33.5|32.8|32.0|
|Private consumption|47.1|48.2|49.3|50.4|51.5|52.5|53.4|54.3|55.1|55.9|56.6|57.4|
|Government revenue|9.8|10.0|9.9|9.7|9.5|9.3|9.2|9.1|9.0|8.9|8.9|8.8|
|Government saving|1.5|1.4|1.0|0.8|1.0|1.0|1.1|1.1|1.1|1.1|1.1|1.0|
|Population and labor force|||||||||||||
|Population (Million)|1211.2|1267.7|1310.1|1360.1|1407.5|1436.9|1459.2|1478.2|1498.7|1514.8|1516.5|1507.8|
|<br>15-64 year old|806.9|858.5|929.6|955.3|975.8|970.3|981.2|974.4|942.6|925.7|924.7|915.8|
|65 andolder|81.1|97.0|109.1|120.9|142.0|177.3|202.4|241.3|286.4|313.3|318.3|329.6|
|Old dependency ratio(%)|10.0|11.3|11.7|12.7|14.6|18.3|20.6|24.8|30.4|33.8|34.4|36.0|
|Share of old age people (65+)(%)|6.7|7.7|8.3|8.9|10.1|12.3|13.9|16.3|19.1|20.7|21.0|21.9|
|Laborforce(Million)|633.9|671.0|715.4|742.8|751.1|750.4|745.2|745.5|740.3|725.9|712.9|709.3|
|Agriculture|330.2|328.2|317.6|290.9|258.7|225.4|194.4|166.0|.147.1|129.1|112.7|98.4|
|State sector|113.7|103.8|90.8|77.7|64.7|51.7|51.7|51.7|51.7|51.7|51.7|51.7|

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