China’s weak demographic outlook – an “invisible” threat to economic growth

08:00 by Hubert Fromlet, Kalmar

There are not many growth indicators that can give more obvious indications on economic growth in the long run than demographics, determined by the future development of population in a country – both of working and non-working (retired) people. We know from research and experience in the real world that many economic and social areas can be influenced by demographic changes and needs – coming from or affecting (without special ranking) –>

# the composition, size and skills of the labor force,

# migration,

# education,

# public finance and debt,

# inflation, interest rates, monetary policy,

# pensions,

# health care,

# environmental needs and changes,

# housing and residential construction,

# urban and total infrastructure,

# institutions of all kinds,

# security (mainly locally),

# digital skill needs (including the elderly),

# new micro preferences created by the different population groups (e.g. “consumption habits”),

# the ever ongoing fight against poverty and/or social inequality in both advanced, emerging and poor developing countries and the access of unemployed to labor markets.

A very good article on the issue of demographics has been published by Loretta Mester a few years ago which I recommend interested readers to study further https://www.clevelandfed.org/newsroom-and-events/speeches/sp-20171116-demographics-and-their-implications-for-the-economy-and-policy.aspx.

Global population still growing …

In general terms, we know that the whole global population will increase further in the forthcoming decades according to forecasts by the United Nations – from currently close to 8 billion people to almost 10 billion by the year 2050 before reaching a predicted peak of around 11 billion at the end of the century. This forecast assumes a continuous development to more global urbanization. However, despite the fact that population forecasts tend to be quite reliable, forecasts as much as 80 years ahead are certainly not an easy call.

Fast-growing populations – in absolute numbers with impact on global population – will be noted in the forthcoming decades, particularly in countries like India, Nigeria, Pakistan, Ethiopia, Indonesia and Brazil. In this context, India is much better off than China – but needs to provide its (younger) population with enough encouraging education for managing a clearly positive GDP-contribution. In a continental perspective, Africa had in 2020 the fastest population growth (+2.49%) and Europe by far the weakest (+0.06 %). However, Africa must improve political systems, institutions (health), bureaucracy, education, digitalization, etc. for really taking advantage of its rapidly rising population.

Negative population trends are currently visible as well, totally in almost 30 countries. The source below gives many details about global population trends – and also expansions / declines in different continents and countries (https://www.worldometers.info/world-population/; each and every table there tells a lot about population developments).

Examples of shrinking population trends can currently be observed in Italy, Poland, the Ukraine, some countries in South Eastern Europe and Venezuela. Even Japan has been facing the same problem since a few years ago. China will be there not very far away from now. Demographic stagnation finally was noted a year ago, in, for example, Russia, Spain, the Netherlands and South Korea.

Normally, a weak or weakening population trend can be explained by a more rapidly ageing population, a declining share of birth trends and sometimes also by emigration waves. The birth-trend factor itself can be influenced by major social trends like a rapidly increasing entry of women into universities and labor markets. More women are also starting or predicted to change their historical family and fertility traditions.

Summing up: Remember that not all countries will have a growing population in the forthcoming decades! Negative trends will be in place as well.

… but down in China with weakening potential GDP growth 

China itself  is not very frequently talking about its future demographic challenges and instead playing down the risks that are obviously existing. It remains difficult to find Chinese statistical population sources going back in history. Western sources on the other hand offer mostly easier access to the Chinese development of population – but without pointing at the quality factor of all these figures (e.g. https://www.worldometers.info/world-population/china-population/ ;  https://www.statista.com/statistics/263765/total-population-of-china/; https://data.worldbank.org/indicator/SP.POP.TOTL?locations=CN).

 

Chinese population trends

  1995 2020
Total population (mill) 1241 1439
Change in population +1.07 +0.39
Median age 27.4 38.4
Fertility rate 1.83 1.69
Urban population (%) 30.9 60.8

 

Looking at this little table above explains partly the currently more slowly growing GDP – look hereby at the decreasing fertility rate, the rising average age and the rapidly accelerating share of the urban population in the past 25 years (with increasing environmental problems)!

Since there exists scientific evidence that more slowly growing or decreasing population  negatively affects potential GDP growth in a country, China’s expected population decline  will – ceteris paribus – reduce potential growth, starting probably at some point in the next decade. Before that, other factors may have already started a visible slowdown in the Chinese economy. Can all this be counteracted by major technological progress?

New demand patterns

In micro terms, the above-mentioned demographic trends – particularly the negative ones -point unavoidably at new demand patterns for many companies of all sizes. This includes new products, product innovation, design and volumes. More differentiation between countries, cultures and companies will be or may be needed – but also new angles for the location of production and other corporate activities. Demographic changes may concern demand side sectors like construction, communication, transports, urban apartments, furniture, services offered by banks and insurance companies, health and medicare services, food, leisure time, sports, concerts, etc. – all factors that will need environmental considerations as well.

More political attention needed to capture demographic changes

In a demographic perspective, more differentiation between age groups, cultures, countries, and companies will be needed for the analysis by corporations – also including new corporate strategic angles for the location of units for research, production, sales and purchasing.

Applying another angle: All the demographic challenges described above should lead to more political attention and action, too. This is still not happening ambitiously enough these days.

Unfortunately, neither in advanced nor in emerging / developing countries!

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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