Demographics and China

Last April I discussed the risks facing China from demographics. This week came a spectacular statistic on the demographic trend that has grabbed the attention of every news outlet: China has turned the corner, and is moving into a population downtrend. That China is under a demographic cloud is no surprise to anyone who follows demographic trends. The surprise is that it is happening so soon. 

And it is really is the start of what will be an ongoing trend; it will keep going down from here. 

Two things: 
(1) My focus is risk, and I usually write about risks. But this emerging trend is not a risk. It is going happen. For sure. We already know, absent immigration, what the workforce will look like decades down the road. 
(2) It is hard to turn it around, and even if a turn-around is successful, it literally takes a generation or two for it to take hold. 

The risk from China's demographics has been a focus of mine for a while. If we look toward the theme of demographics it is staring us in the face. And the demographics is one reason I disagree with Ray Dalio’s view that there will be a changing of the guard, with China rising and the U.S. waning. [My Recent post on Dalio] The open question is what the implications of the demographics will be and how well it can be mitigated down the road. 

Here is the commentary from last April. Demographics move slowly, so all of the graphs and numbers hold with little change. 

APR 28, 2022 

Surprisingly, some of the sure things are ones that will only appear over decades. 

You’d think things very far out are the most hazy and uncertain. But not so for demographics. If we take cross-border population flows out of the picture, we know today the working class cohort 25 years from now. 

A case study for risk coming from demographics: China. The accompanying chart shows the troubling trend. Population growth continues a decades-long drop, and an actual population decline is just around the corner. 

You might think trying to get a read on trends far into the future is so iffy as to be useless, but not so. Although we can’t count the yet-to-be-born, trends in the birth rate reverse course very slowly. It doesn’t happen on a whim; often there are cultural changes afoot. One case in point: Marriages have dropped in tandem with China’s declining population growth rate. Marriage licenses fell to a 13-year low, continuing a decline over the last decade. Pressures pushing them down include a tradition of extravagant wedding gifts that can drain a parent’s savings and a rise in the percentage of women who no longer feel societal pressure to be married. That gives us a sense of future births. 

The risk part is not will it happen, but what will it do. It’s a question for many countries. Germany has a birth rate of 1.5%. For China, the issue is more acute than for others, because its population, consumer base, and the sheer size of its workforce have been a more central part of its economic growth. And the prospect of a material level of emigration is very unlikely for China, whereas it can be considered as part of the solution for the U.S. and for Europe. China certainly sees it as a threat, and there are proposals to stem this tide flying out from the policymakers. But if history is a guide, it is like buttressing against a tidal wave. 

This future is now for China’s neighbor. In Japan, the birth rate is 1.34. (Replacement rate is 2.1).  There were only 840,000 babies born in Japan in 2020. So even now we can get a taste of what is in store for the current cohort of China’s children — many of whom will be passing into retirement as the end of the century approaches. 

Source: United Nations