China’s vast population is starting to fall, and the rate of decline could accelerate sharply in the years ahead. What will this mean for the global economy and markets?
- Hardwiring massive human resources to the world economy turbo-charged China’s rise
- But those resources are now starting to dwindle
- This will have profound effects on developed economies too
Nearly one in five humans still calls China home, more than 1.4 billion people. Still, January brought news that the country’s population fell in 2022, for the first time in sixty years. According to official Chinese figures, there were 850,000 fewer Chinese than there had been in 2021.
The total population was clocked 1.4118 billion last year, to be exact. And falling. There was more disturbing news in the details. China’s birth rate was down to 7.52 new arrivals per 1,000 head of population. Incredibly that’s much lower than developed economies like the United States and the United Kingdom. India’s rate is 16.52. That’s more than double China’s.
The fertility rate fell through the 2.1 level needed to keep population stable way back in 1991. The demographic timebomb initiated then is ticking very ominously now.
It’s now certain that India will soon surpass China as the world’s most populous country. Indeed, it may already have done so.
China’s One-Child Policy: The Aftermath
Seven years after scrapping the one-child policy, China has entered what one of its own officials called an era of ‘negative population growth.’ It seems that, even freed of official strictures limiting family size, many Chinese people remain leery of reproduction. The costs of looking after children are often seen as extremely prohibitive.
Large families, indeed, even quite modest families by global standards, are simply no longer part of China’s cultural landscape. With a cost-of-living crisis, a rise in the age at which people marry and more women choosing to work, they’re not likely to make a comeback anytime soon.
Now, of course, all this is hugely important for Chinese policymakers, and demographers are no doubt fascinated. But, make no mistake, China’s demographic shift will have an enormous global impact far beyond its borders.
China’s Growth in the Age of Globalization and Beyond
Abandoning isolation in the early 1980s, the Chinese economy has become ever more wired into the global mainstream. It has sucked in raw materials on a scale unknown before, and built itself export dominance in thousands of markets, in hundreds of countries, thanks very largely to a vast pool of extremely competitive labor, to which rust belts and derelict factories all over the Western world bear doleful witness.
Today, with monetary authorities just about everywhere fighting inflation on a scale we’ve not seen since (you guessed it) the early 1980s, one of the major questions facing market participants all over the world centers on how successful they are going to be, and whether we’re ever going back to the halcyon, pre-Covid days when prices just lay there, friendly and reassuring.
Well, if China’s once-endless supply of cheap labor is starting to dwindle at last, it’s surely a safe bet that the calming effect the country once had on global prices is going to fade too. This need not happen anytime soon of course. China remains a manufacturing powerhouse and automation can keep products cheap even when labor costs rise.
But some China watchers think that its population fall will now accelerate quite rapidly. There are those who think that the current, aging population and lack of replacement means that there could be only half as many Chinese at the end of this century as there are today.
CHART: Number of Employed Persons in China
Western nations faced with population peaks have turned to migration in an effort to fill the gaps. It seems unlikely that China will be able to do likewise, even it if wishes to. And there’s frankly little sign that it does. For comparison, fully 17% of German residents were born elsewhere. In China the figure could be as low as 0.1%, and it remains practically impossible for foreigners to obtain Chinese citizenship.
Now, faced with post-Covid realities and wary of Beijing’s more authoritarian turn, many nations have been rethinking their supply-chain dependence on China in any case. China itself is attempting to move away from the export model which fueled its phenomenal growth but from which the most accessible fruits have already been squeezed.
But add it a declining population and it’s clear that the days when Chinese supply could be counted on to keep western interest rates low are behind us, and how. The end result is likely to be higher borrowing costs than western consumers and businesspeople have become used to, a lower supply of credit and the restrictions to economic activity which will come with it.
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China Construction Boom Living on Borrowed Time
Then there’s demand. There are already clear signs that China’s extraordinary construction boom has produced far more real estate than the country needs. There are reportedly 65 million empty properties there now, enough to house France. Entire ‘ghost cities’ are not unknown.
This construction was largely done with raw materials imported in massive bulk from producer nations such as Australia, fueling unparalleled mining booms. Even without the demographic timebomb it’s long been clear that China’s reliance on construction for economic growth would have to meet market reality sometime. But, again, while the good times for China’s suppliers needn’t stop rolling entirely, it’s clear that the party will have to wind down considerably.
It’s also now more likely that China’s population will get old long before it gets rich, at least as ‘rich’ is understood in mature, developed markets. That means the bonanza reaped by western goods exporters, particularly of luxury goods, is also on borrowed time.
Other countries may be able to fill some of the gaps, with India, Indonesia, Egypt and Nigeria all possible. But none has so aggressively and successfully positioned themselves in the world economy as had China. Nowhere near, in fact. It seems unlikely that they’ll be able to compensate fully for a shrinking Chinese populace.
Aging populations and a struggle to fill essential vacancies are becoming uncomfortable facts of life in the ageing West. In China these difficulties are likely to be written even larger as an economy predicted on an ever-rising population struggles with what once seemed like the unthinkable.
---By David Cottle for DailyFX
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