China’s huge population — 1.4 billion-plus –– often adds to American fears of Beijing’s military and economic potential. Yes, China has a lot of people, but they’re aging fast and there is already a clear shortage of younger workers. The country’s working-age population is set to fall in coming years, and, critically, it will face the economic burden of a rapidly growing population of dependent retirees.
For Americans, and especially American investors, China’s demographic predicament has two huge implications:
- The relative shortage of workers will slow the pace of its economic growth so that, contrary to many of today’s accepted “truths,” China will not supplant the United States as the world’s leading economy, much less lift its currency (the yuan) to precedence over the U.S. dollar.
- Those looking to invest in long-term growth opportunities might do well to turn away from China and toward other Asian markets or investigate smaller companies innovating in developed economies.
Demographics usually gets little attention from the media –– its effects unfold too slowly to capture the attention of the everyday news cycle. But the makeup of a nation’s population matters a great deal to its long-term growth prospects. China’s population in the 1970s, for example, was ideal to support the decades-long growth that followed her economy’s first opening to the world. According to United Nations (UN) statistics, working-aged people in 1980s China far exceeded the numbers of the elderly –– the country had nearly 23 potential workers for each dependent retiree. This constituted a huge productive surplus that allowed China to take full advantage of the many opportunities that came its way.
But China’s then leader, Deng Xiaoping, showed less foresight than he is typically given credit for. Saying that he wanted young adults to work instead of caring for children, he instituted a limit of one-child-per-family. Over the years, this policy limited, first, the number of infants, and then the number of adolescents. Since the turn of the present century, it has increasingly crimped the flow of young workers to replace those who first stepped up to support China’s economic surge and who are now retiring.
By now the relative worker shortage is beginning to bite. As of the 2020 census, UN demographers calculate that China now has only 5.0 people of working age for each dependent retiree. Keep in mind that those workers must produce enough for their own needs, those of their personal dependents, and one-fifth of the needs of a retiree. Even if China had assets to support those retirements –– which it does not –– that heavy burden on each worker will limit the productive surplus needed to pursue, not only the huge investment projects for which the country has become famous, but smaller projects as well. Even the most productive workers in the world would have a hard time meeting this challenge, and China’s output per hour is hardly among the best.
What is more, existing demographics suggest that the worker shortfall will only get worse. The UN forecasts that, by 2030, China’s workforce will decline by some 26 million, while those of retirement age will increase by some 75 million, leaving the country with less than 4.0 people of working age for each retiree. And even though China has rescinded its one-child policy, and even if the Chinese population takes advantage of the new freedom to create a family –– which so far does not appear to be the case –– it would take another 18 to 20 years, or even longer, before such a new trend can significantly raise the numbers of working-age Chinese.
This inevitable slowdown in China’s growth will disrupt many of today’s widely held beliefs about the economic future of the world. For those who fear Chinese economic supremacy, the demographic facts should relive their anxiety. China’s GDP may surpass that of the United States, but it will not leave America “in the dust” as many media discussions have implied. Investors interested in rapid growth, then, may want to look somewhere other than China, to countries elsewhere in Asia, Vietnam and Indonesia, for instance, or perhaps to new startups in the United States or elsewhere in the developed world.
Bitesize Investing 