The older adults are suffering from declining cognitive function with the rapid population ageing. On the basis of 2011 and 2014 CLHLS database, this research explores the transition of cognitive function by age and gender, using the method of continuous time homogeneous Markov process. Risk factors affecting cognitive function are identified. The size of elderly population with cognitive impairment at four different levels is estimated and projected for the decade of 2015-2024. The probability of cognitive impairment decreases among older people, and the decline is most significant among the oldest old. Being male, having higher level education, doing persistent exercise, participating social activity, and better health status are associated with a relatively slow decline in the cognitive function. It is projected that there would be 27.85 million elderly population over 65 years old with cognitive impairment by 2024. In addition, this research provides the basic methodology for need assessment of long-term care services for older adults with dementia.