In 2026, as some 80 countries worldwide have fallen below the population maintenance line, East Asia stands at the forefront. We examine the signals that the diverging paths of Japan and China send to South Korean companies.
Executive Summary
As of 2026, approximately 80 countries—accounting for about half of the global population—have fallen below the replacement fertility rate of 2.1 births per woman. These are nations that have entered a zone where populations decline without immigration. Among them, the three East Asian countries of South Korea, China, and Japan record the lowest fertility rates in the world, standing at the forefront of demographic structural change.
The impact of low birth rates on the economy is multifaceted. It manifests in four distinct ways: labor shortages and growth slowdowns driven by a shrinking working-age population; a contraction in the domestic market due to a smaller consuming generation; structural deficits in pensions and health insurance resulting from a simultaneous decrease in contributors and increase in beneficiaries; and fiscal pressure accumulating as all these factors flow into government budgets. Japan is a "precedent case" that has walked this path for over 30 years, while China is a "latecomer case" that has entered the same path at the fastest pace. The diverging responses of the two countries offer significant implications for South Korean businesses and investors.
Background: An Era Where 80 Countries Fall Short of Population Replacement
Low birth rates are no longer a phenomenon limited to a few developed countries. Half a century ago, only six countries—such as the Czech Republic, Estonia, Hungary, and Japan—fell below the replacement fertility rate, accounting for about 5% of the global population. However, as of 2026, that number has exceeded 80 countries, with about half of the world's population living below the population maintenance line. According to projections by the United Nations and other bodies, more than 130 countries—or two-thirds of the global population—are expected to enter this zone by 2050.
What is noteworthy is the universality of this decline. Nearly all countries in North America, South America, Europe, and East Asia have fallen below the replacement rate, and a clear downward trend is also evident in sub-Saharan Africa, once a symbol of high fertility. According to analyses cited by international scientific media in May 2026, diagnostics even suggested that China's actual fertility rate may already be lower than Japan's. In a report, Professor Jesús Fernández-Villaverde of the University of Pennsylvania emphasized the weight of this change with the strong statement, "Right now, the only two things that matter in life are fertility rates and deep learning; the rest is just noise."
Amidst this trend, the position of the three East Asian countries is particularly extreme. Among the 38 OECD member countries, all except Israel are below the replacement fertility rate, and the lowest among them is South Korea. In the fourth quarter of 2023, South Korea recorded a quarterly total fertility rate of 0.65, becoming the world's first country-level case to drop into the 0.6 range, with its annual total fertility rate tallied at 0.72. One demographic projection forecasts that if fertility rates fail to rebound, South Korea's aging rate for those aged 65 and older will surpass Japan's by 2045 to rank first in the world.
Japan: The 'Future Invoice' That Arrived 30 Years Early
Japan is the oldest laboratory demonstrating what kind of economic invoice low birth rates and aging leave behind. Having entered a phase of declining working-age population since the 1990s, Japan has subsequently cemented a structure over several decades where social security spending encroaches on the national budget. With a shrinking working generation and an increasing elderly population receiving pensions and medical care, state finances have entered a stage where deficit pressures mount solely due to demographic structures, even without policy changes.
Japan's response can be summarized in two directions. One is encouraging childbirth through fiscal investment. Under the banner of "unprecedented measures against the declining birth rate," the Japanese government has pursued the "Children's Future Strategy," centered on increasing youth income, transforming social structures and awareness, and providing continuous support for all children and child-rearing households. The other is a policy shift accepting population decline not as a "target to be reversed" but as a "reality to be adapted to." This involves extending retirement ages and encouraging older adults to remain in the labor market to slow the pace of workforce reduction, while filling labor shortages through automation and productivity enhancement. The lesson from Japan's experience is clear: raising fertility rates in a short period is extremely difficult, and unless fiscal, pension, and labor market systems are redesigned to match the new demographic reality, the shock will be passed on intact to the next generation.
China: A Giant Economy Entering the Same Path at Record Speed
China is facing the changes that Japan experienced over 30 years in a much shorter timeframe and on a vastly larger scale. Combined with the long-term effects of the one-child policy and rapid social changes, the fertility rate has dropped sharply, with the total fertility rate falling to 1.08 in 2022, when the total population declined for the first time in over 60 years. By 2026, analyses have even been raised suggesting that China's actual fertility rate could be lower than Japan's.
China's problem lies in its scale and speed. As the world's second-largest economy and the center of the global supply chain, if China's working-age population shrinks and its elderly population rapidly increases, the shock will not remain confined within China. A shrinking younger generation with purchasing power will lead to a long-term contraction of the massive domestic market, which directly translates into a burden for South Korean export companies relying on the Chinese market. At the same time, labor reduction leads to rising wages and manufacturing costs, potentially shaking China's comparative advantage as the "world's factory." If Japan is a "wealthy country that aged first," China is evaluated as facing a more difficult adaptation process because it is "aging before becoming sufficiently rich."
Analysis: The Fourfold Costs Invoiced by Low Birth Rates
The economic shocks of low birth rates running through the cases of the two countries can be summarized into four categories. First is labor. When the population newly entering the labor market decreases every year, labor shortages in specific sectors become chronic, and innovation and growth momentum can weaken in the long run. Second is domestic demand. Because the younger generation with purchasing power itself decreases, the domestic market structurally contracts. Third is social insurance finance. The National Pension and health insurance face simultaneous pressures of structural deficits as contributors decrease and beneficiaries increase. Fourth is national finance. Combining the previous three shocks, tax revenues decrease while welfare spending increases, creating a tendency for government fiscal deficits to worsen even without separate policy measures.
However, it is also worth noting that counterarguments to this "crisis narrative" are considerable. In a paper published in March 2026 in *Nature Human Behaviour*, researchers Wolfgang Lutz and Guillaume Marois of the International Institute for Applied Systems Analysis (IIASA) argued that the conventional wisdom equating low birth rates directly to economic crises relies on outdated assumptions. They evaluate that the benchmark of a 2.1 replacement fertility rate is merely an artificial benchmark, and that societies with low birth numbers can also prosper if they sufficiently invest in education and productivity while reforming social security, labor market, and pension systems to fit the new demographic reality. The core message is that strategies adapting systems to changed demographic structures may be more realistic than attempts to revert fertility rates to arbitrary targets.
Outlook and Checkpoints
Low birth rates are both a threat and a new source of demand for South Korean companies and investors. There is a need to separately read the business signals generated by demographic structural changes. First, industries with high reliance on domestic demand are likely to be exposed to market contraction pressures in both South Korea and China, requiring overseas market diversification and strategic reorganization targeting changing consumer groups such as the elderly and single-person households. Second, automation, robotics, and AI infrastructure areas filling labor shortages are evaluated as fields expected to see structural benefits. Third, an expansion of demand for nursing, healthcare, and pension-related financial services is projected in line with aging. Fourth, Japan's 30-year experience is worth utilizing as a leading indicator to gauge policy and market changes in South Korea.
The focal points for observation are clear. Depending on whether the three East Asian countries cling to the difficult goal of rebounding fertility rates or pivot toward a Japanese-style "adaptation strategy," the policy landscape and industrial opportunities of the next decade will change. For companies, what matters is not the crisis theory itself, but reading first which industries' demand the changes will diminish and which industries' demand they will expand.