One of Japan's most senior politicians says that it desperately needs immigrants or it will lose to China

REUTERS/Issei Kato

TOKYO (Reuters) - Japan should craft an "integrated" immigration policy to cope with its shrinking population, or risk losing out to an ageing China in competition for vital foreign workers, the cabinet minister for administrative reform said on Thursday.

Prime Minister Shinzo Abe has made raising Japan's rock-bottom birth rate a priority and wants to focus on drawing more women and elderly into the workforce to fill gaps rather than on immigration, a contentious topic in a society where many pride themselves on cultural and ethnic homogeneity.

Forecasts based on current trends expect the population to fall below 100 million in 2048 and to about 87 million by 2060, when 40 percent of people will be 65 or older. Abe wants to hold the line at 100 million by 2060, a fifth below current levels.

"Even if you magically increased the birth rate by tomorrow, still it would take these babies 20 years to grow, so we really need to do something about the labor market," Taro Kono, appointed in October, told Reuters in an interview.

"People talk about getting more women (and) ... more senior people to stay in the labor market. We obviously have to do both, and that still will not be enough," added Kono, known before joining the cabinet as an outspoken critic of some government policies.

Kono said given "psychological barriers" to immigration among the Japanese public, the policy debate would take time.

But unless Japan begins to tackle the issue, it will lose out to China, itself facing an ageing, shrinking population.

The World Bank said in a report this week that East Asia was ageing faster than any other region.

"Are we competitive enough to pull good foreign workers to this country? I have some doubt about it," the U.S.-educated Kono, 52, said in fluent English.

"Think about China. They will soon start getting old and need a lot of care workers and they will start sucking in all the foreign workers, and then it's going to be fierce competition."

Kono said that the government was taking some steps to open up to foreign workers in sectors such as construction, nursing and domestic help, but an overall policy was needed.

"We probably need some kind of integrated policy in the future. That's what I call immigration policy or foreign workers policy - integrated, not just piece by piece," he said.

(Editing by Nick Macfie)