After all the prognostications, projections and proclamations of the past 20 years asserting that China would soon overtake the U.S. as the world's dominant superpower, the People's Republic is now facing twin perpetual headwinds, and has no realistic options for countering either of them.
The first could accurately be described as the strongest long-term force driving the fates of all great powers: demographics. What was, for many previous decades, China's ultimate advantage — its never-ending supply of working-age laborers — peaked at almost exactly one billion people in 2010, according to the Chinese census. The next census, in 2020, revealed that for the first time since China's economic liberalization in the 1970s, the working-age cohort had shrunk, decreasing by more than 30 million. The U.N. estimates that this group will continue to contract. . . . The under-14 population will also fall in that same period, from just over 250 million in 2020 to a median projection of 150 million in 2050. Not only will the workers be disappearing, but nobody is expected to replace them.
Every age-related trend in China is going in the wrong direction. The nation's median age, once well below the Western world's, is now older than America's and headed further north with every passing year. Deaths outnumbered births last year for the first time since 1961. The fertility rate, which normally must be at 2.1 children per adult woman just to maintain a steady population, has slipped to below 1.1 — a figure made worse by the fact that, unlike in virtually every other country on the planet, China doesn't have a relatively even gender split in its adult population . . . Basic math dictates that tens of millions of these "extra" men will never start families of their own. To compound the problem even further, women in China have indicated lower interest in having children than ever before. . . .
In Japan, economic stagnation produced a period that was called the "Lost Decade." That stagnation eventually persisted so long that some began to refer to it as the "Lost Generation." In China, an even more ominous buzz-phrase has become popular online: The "Last Generation."
Much has been made of the difficulties China will face in attempting to manage a rapidly-shrinking workforce against a rapidly-growing retirement age population, which is projected to double by 2050. But that issue may actually be preferable to what is likely to happen afterward, or perhaps sooner if some of China's older population doesn't wind up living as long as expected. . . . . the lower-end expectations at the end of the century: 600 million, 500 million, perhaps as low as 450 million. Even the median projection puts the number at around 750 million.
If you think China has ghost cities now, imagine that vast nation with barely one-third of the population it has today. What will happen to property values in a country where between 50 and 70 percent of its people have disappeared? What will happen to tourism? To retail? So many articles have been written about what happens when a modern society grows "too old," as has happened in Japan and Germany, among others. But how many have been written about what happens when the majority of a modern society vanishes altogether?
To make matters worse, if that seems possible, all these numbers rely on official Chinese statistics, and the government has likely been overstating them. . . . . According to a report by CCTV on January 7, 2012, the Jieshou city in Anhui province reported 51,586 primary school students, when the actual number was only 36,234, allowing them to extract an additional 10.63 million yuan (about $1.54 million) in state funding.
China's demographic headwinds, therefore, may be hurricane-strength. To be fair, most major nations in the West also face declining birth rates and aging citizens. The enormous difference in projected demographics, at least in many of those cases, comes down to immigration. Even with a current fertility rate of only 1.6, the U.S. population projects to reach roughly 400 million by the end of the century, according to the U.N.'s median estimate. East Asian countries tend to have much more restrictive immigration policies, but nowhere is this as true as in the People's Republic. Since 1950, which is as far back as the data goes, China has never experienced a single year of net positive migration. Ever.
As previously mentioned, Beijing faces not one but two enormous burdens going forward. The second should not come as much of a surprise, as it was intertwined with China's population burst during all the good years: the economy.
Yes, the mighty Chinese economy, the boomiest boom that's ever boomed… is going to become a big, big problem. Much of this problem will, of course, be caused by the enormity of the demographic crunch. But there are specific details that will amplify the impact of that crunch. A whopping 70 percent of Chinese household wealth is held in real estate. Seventy. Percent. (The comparable number in the U.S. is less than half that.) . . . . Keep in mind that China's population is shrinking, and will continue to do so with increasing velocity. According to the World Bank, home price-to-income ratios in Beijing, Shanghai, and Shenzhen exceed "a multiple of 40;" the same figure is "only" 22 in London and 12 in New York, two notoriously expensive cities in the West.
It is likely impossible to overemphasize the potential economic damage that will likely ensue when previous decades of population growth, urbanization and the frenzied real estate investment that has accompanied them run into the brick wall of new decades with consistently fewer buyers — and that doesn't mean "fewer buyers" in the normal sense of a bubble popping, but the literal absence of hundreds of millions of buyers over time. What will happen as those aforementioned ghost cities begin to multiply? And perhaps the more important question: How can China possibly make its all-important transition to a consumer-based economy when consumers as a whole have shoved so much of their wealth into properties that will often end up being worthless? How in the world is this supposed to work? How could it work?
That consumer transition becomes more necessary every day, because China has no other realistic option for productive growth moving forward. For years, Beijing has obsessively pushed economic activity toward investment, which sounds appealing at first simply because of the connotations of the word. But the Middle Kingdom long ago started running up against the law of diminishing returns when it comes to endlessly increasing investment. . . . "China has the highest investment share of GDP in the world. It also has among the fastest growing debt burdens in history.
The ironic lack of social safety nets in an ostensibly Communist country, combined with a seemingly unstoppable regime of compulsive over-investment, has for many years resulted in the exact opposite of what China needs — consumers have felt and still feel it necessary to have some of the highest savings rates in the world, which means they aren't becoming a larger part of the economy but rather a smaller part of it.
All these factors, and likely many more, have recently produced a series of announcements that, at least to some, were not much of a surprise: "China's economy may never overtake the U.S.," declared Business Insider. "China Quietly Abandons Goal of Overtaking U.S. Economy," opined Newsweek. Nikkei chimed in that "China's GDP is unlikely to surpass U.S. in next few decades."
"The next few decades" is probably generous. The Chinese economy, if measured by anything remotely approaching the slightest degree of accuracy, won't surpass America's because it can't. The structural forces that have allowed it to grow at breakneck speed for half a century are now the same forces preventing it from continuing to do so. Chinese labor costs today are significantly higher than costs for the same amount of labor in both its Asian neighbors and Latin America, including Mexico . . .
China's "factory of the world" status is slowly evaporating because cheaper workers can now be found elsewhere, which often come without problems like blatant IP theft across countless industries or figuring out whether any given supply chain involves Uyghur forced labor camps. The Chinese population is shrinking, meaning that domestic labor costs will continue to surge upward even as overall GDP growth falls. The government in Beijing is worried about "South Park" and Winnie the Pooh. China is no longer a place where capitalist dreams go to succeed, and indeed the fact that it ever was reflects one of the biggest mistakes the Western world has made since the fall of the Iron Curtain.
President Xi Jinping probably won't be happy with the way the rest of the "Chinese century" is likely to turn out. If it's any consolation, he should be happier right now than he will be in the years ahead.
No comments:
Post a Comment