Even as its social welfare system is expanding Chinas population

Official Explanation

THE PROMPT

• TAKEAWAY - Ask: is that noun modifier actually modifying a bona fide noun?

→ a key demographic trend is almost certainly an appositive. Some sort of "trend" is a noun.
Appositives are nouns or noun phrases that rename or give more information about another noun.
Appositives are often set off by commas and occasionally by em dashes.

Just as you would make sure that the word which or it actually referred to a stated noun and not to one implied by a previous clause, so too you should make sure that an appositive modifies a stated noun rather than one tacit in an idea.

• TAKEAWAY: Although "possessive poison" is not an ironclad rule, if we can avoid the use of weird pronoun antecedents, we should do so.
Stated differently, if another option is crystal clear about the pronoun reference and is correct in every other aspect, that option is the better than one whose only hitch is that its pronoun is in the possessive case whereas its noun is not.

See Notes, below. (If you have no idea what "possessive poison" is, do not worry. A post I authored, to which I cite below, describes the rule even as I partially debunk the hysteria it has created.)

THE OPTIONS
• improper modifier
→ China's population growth is slowing is not a noun. Those italicized words are a clause.
→ On the other hand, a key demographic trend is a noun—in fact, it is an appositive phrase that should be modifying some kind of noun such as slower population growth. A certain kind of growth is a noun. A key demographic trend is also a noun (and an appositive that tells us more about the first noun).
→ a key demographic trend incorrectly tries to modify a clause. Not okay.

• idiomatic construction
We want to express purposive action (or effect). To do so, use
. . . a trend that is likely to lead to slower economic growth
rather than what we see here:
. . . trend likely leading to slower economic growth
This split should not be dispositive on the first pass.
The clear error here is the modifier problem.

ELIMINATE A

• improper modifier
→ same issue as that in option A

• "likely leading"
→ same issue as that in option A

• semicolon mistake!
→ you cannot put a semicolon between two incomplete thoughts.
-- Whatever comes before a semicolon must be a full independent clause.
-- Whatever comes after a semicolon must also be a full independent clause.
-- Furthermore, those two clauses should be related to one another; the semicolon indicates "continuation" and functions in a way similar to "comma + and." (Both join two independent and related clauses.)
→ what comes after the semicolon is not an independent clause. That construction is impermissible.
ELIMINATE B

• pronoun/noun antecedent
→ can the possessive pronoun its act as the antecedent for the not-possessive noun China?
Maybe. The situation is not ideal, but meaning is fairly clear.

• likely leading vs. [that is] likely to lead
→ We cannot be sure, but this split probably exists for a reason.
Options A, B, and C use the verbING + infinitive construction (likely leading to) whereas options D and E use a that + infinitive construction (that is likely to lead to).
→ I suspect that the latter is preferred because it more clearly describes what the trend is likely to cause to happen, a result around which the sentence is centered. If I need this split later to break a tie, I will use it.
KEEP, but look for a better answer

• can possessive pronoun its refer to non-possessive noun China?
→ same potential problem as that in option C, so we are not helped much

• a trend likely leading to vs. a trend that is likely to lead to?
Pick the latter. (I have peeked at E. The form of possessive antecedent in E is not as clear and not as frequently allowed as that in options C and D. So eliminate E and choose between C and D.)
→ that is likely to lead to is an essential and strong modifier that highlights what the sentence is trying to emphasize: the fact that even an expanding social welfare system cannot keep pace with the negative consequences that are likely to occur because of a slower rate of population growth.

• We can eliminate option C. It's ___ING structure is a bit flabby (___ING words can sound a bit passive) and not as good as option D at expressing the important outcome of the trend, about which the sentence is centrally concerned.

• "it" is ambiguous, bizarre, or both
→ "It" does not clearly refer to China, but rather, to China's social welfare system.
How can the social welfare system both be expanding but also experiencing a decrease in the rate of population growth?
A social welfare system distributes resources to people in need. (Well, theoretically.)
A social welfare system itself is not composed of people and hence not logically attached to ANY rate of population growth.
And if "it" refers to the social welfare system, why on earth is that system expanding if, say, the rate of population growth is slowing?
This construction makes a lot of messes.
I am not a fan.

• meaning is clearer in option D, in which the subject of the sentence ("China" and its "trend") take center stage and are easily identified.
In other words, in (D) the important subject ("China") takes center stage while the slightly weird pronoun (its) is relegated to the introductory background.
→ Option E switches those two words, its and China, creating illogic and nonsense.
ELIMIANTE E

The best answer is D.

COMMENTS

nahid78 , welcome to SC Butler.

gloomybison , please see Notes below. You are on the right track about possessive poison, and I appreciate your having provided an example. Doing so helps readers decipher the discussion. (Interestingly enough, that question is neither the oldest nor newest example of what you mention, a fact that I detail in the post I cite below.

This question is tricky.
Don't be discouraged if you got stuck or saw few differences.
Now you will be on the lookout.

I am pleased to see everyone's efforts.
nahid78 , I am bumping your answer to Best Community Reply.


**
Notes

• "Possessive poison"
On the GMAT, as long as meaning is clear, both object and subject pronouns may have a possessive noun as an antecedent.
At the same time, such constructions are not typically ideal.

For a long time, people believed that GMAC would not allow a possessive noun or pronoun such as Jane's or her (Jane's success, her friends) to act as an antecedent for a subject pronoun such as she.

GMAC had already made it clear that in rare cases, a possessive noun could act as an antecedent for an object pronoun, this way:
Fifty of the doctor's patients signed a card to thank her for saving their lives.

One official example from 2008 in which a possessive noun is allowed to act as the antecedent for an object pronoun can be found here.

By contrast, everyone seemed to believe that GMAC would never allow a possessive noun or possessive pronoun to act as the antecedent for a subject pronoun (he, she, they).
In 2016, though, [SPOILER ALERT], GMAC published a question that ignored the "possessive poison" rule for a subject pronoun.
That question is here.

The 2016 OG contained a question that utterly ignored what is referred to as "the possessive poison rule."
(It was never an ironclad rule. Just a preference.) Most people were surprised. A couple of people thought that the question was a fluke. (It is not.) Many aspirants were frustrated.

I researched. Why would GMAC spring what seemed to be a big surprise?
Answer: GMAC did not spring a big surprise. GMAC had been hinting all along.

GMAC does not frequently allow a subject pronoun such as she to have a possessive antecedent such as her,
but GMAC sometimes does allow both subject and object pronouns to have possessive antecedents—and GMAC has been doing so since at least 2005.

In an answer to a Manhattan Prep question that mimicked the 2016 OG question, I wrote a post about the possessive poison rule.
I surveyed a decade's worth of official guides, all of which are better sources than usage notes from an online dictionary or than wikipedia.

The Manhattan Prep question is here. It's useful if you are "saving" official questions for practice. Well, it's useful no matter what.

My post about possessive poison, just below that question, is here.
That post applies to both the official 2016 question and to its Manhattan Prep analogue.

In that post I concluded: On the GMAT, as long as meaning is clear, both object and subject pronouns may have a possessive noun as an antecedent, so do not automatically reject such pairings. Do not accept them blindly, either.
Sometimes okay does not equal always okay.