China's Looming Demographic Problem Moves Steadily Up On The Radar
February 10, 2010
As the Economist points out, the impact of China's years-long one child per family policy is going to be significant, and while changing it now would prove too late to avoid short-term damage, in the longer term such a change will be essential if the country ever wants to return to some kind of structural stability.
SINCE the 1970s China's birth rate has plummeted while the number of elderly people has risen only gradually. As a result its "dependency ratio"-the proportion of dependents to people at work-is low. This has helped to fuel China's prodigious growth. But this "demographic dividend" will peak in 2010. China's one-child policy will keep birth rates low, but as life expectancy continues to increase, so will the dependency ratio, reducing the country's potential for growth. The government could yet salvage the situation by loosening its one-child policy. More children would increase the dependency ratio until they were old enough to join the workforce, but reduce labour shortages in the long term.
Again, no one really knows what the present Chinese total fertility rate (TFR) actually is. The US census bureau has just revised down its China TFR estimate to 1.5 from 1.8, but many internal studies put it at nearer 1.3, which, if accurate, is bound to produce a major structural distortion in the population pyramid. The economic consequences–for the whole planet–are also bound to be significant, as "Nobody" points out:
Meanwhile, given the general propensity of China to rapid economic growth and no less dramatic deceleration of its population growth (the workforce will stop growing pretty soon actually), the next superpower is about to transform itself into a huge vacuum machine sucking off labor surpluses from around the globe. Inside China labor shortages will develop and wages shoot up pushing labor intensive industries out of China and generating demand for these products from outside China. In short, after a decade or something, the global economy, and even more so the economies of the third world, may get a friendly push forward from the world's next superpower, and a very massive one on that occasion.
We continue to maintain that before 2012 to 2015 China will suffer a meltdown like that of Japan and East and Southeast Asia before it. China will not disappear by any means, any more than Japan or South LKorea has. What investors tend not to notice is that China's economic model is not sustainable.
Its model favors employment over all other concerns, and can only be maintained by running on very thin margins. Eventually manufacturing margins turn negative as they did in Japan in 1991, and Indonesia in 1998. China will be no different.
Source: Economist
