China Research

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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Chinese remained also in 2021 in the headlines – but in recent quarters with more focus on politics than on the economy. Politically, China has increasingly gone its own way without considering or following international “rules” and frameworks of behavior. This could be watched in China’s aggressive rhetoric against a number of Western democracies, its rising nervousness about Hong Kong and Taiwan, the absence of China’s President from COP26 in Glasgow, and China’s ambiguous willingness to do everything possible for major environmental progress. Hopefully, the loosely – during COP26 – agreed future cooperation between China and the U.S. can mean a little step forward.

China has been changing style

I have been thinking quite some time about the answer to the question what has led to the changed, less convenient political style of China’s main political leader(s). In my view, there are the three following possibilities:

¤ China’s harsher political tone may reflect increasing fundamental economic and social weaknesses at home – resulting in diversionary maneuver from the domestic to the international (global) arena.

¤ China may have been trapped by the urge to manifest its self-proclaimed global supremacy as much as possible.

¤ There may also exist very different reasons for the strong mutation of China’s political style – i.e. strengthening the power of the Communist Party and particularly of its Chairman Xi Jinping in personam. Observers are currently even discussing whether Xi could be on his way to create a life-time presidency. Looking at all this, one looks back nostalgically to the years times when China still ambitiously tried to receive international recognition.

Personally, I believe that all the three above-mentioned arguments to some extent may explain China’s ongoing political trend – probably with the last-mentioned factor in the first place. At the same time, however, I wonder if China will benefit from this currently chosen direction. My view is rather that an internationally cooperative China would be better off in the longer run – also at home – than the current isolationist and divergent political course can offer.

Weakening economy – but deep interpretations remain difficult

As described above, China’s political strategies are difficult to interpret more deeply. Also when it comes to the economic development, I always felt – and still feel – quite some uncertainty about the usefulness of Chinese statistics, particularly when it comes to GDP, unemployment, inflation, bad loans (NPLs) and local government debt. Limited access to relevant statistics and insufficient (statistical) transparency have shown up as analytical obstacles during many years, at least in my view.

But let’s look at some available economic developments all the same for getting at least some idea about the current state of China’s economy.

GDP: GDP in Q3 was disappointing again (+4.9 % yoy; +0.2 % qoq compared to expected +0.5 %; q2: +1.2 %; q1: +0.6 %). Q3 meant in other words the weakest quarterly GDP-growth rate since the eruption of the corona crisis in early 2020. Consequently, doubts seem to be motivated whether the official GDP-growth objective still can be met (“more than 6 %”).

Car registrations: A fall by 9.4 % yoy was noted in October – very much due to different exogenous shortcomings.

PMI: Purchasing managers reported a slight drop for manufacturing in October to 49.2, down from 49.6 in September.

New loans: Banks granted in October new yuan loans amounting to only half of the number from September. This may have had seasonal reasons but may also reflect some weakening of the business cycle. One should not forget that also Chinese manufacturing output and supply to investors and consumers have been influenced by the global shortages of semiconductors, other intermediate goods and bottlenecks in transport capacities.

Inflation: Inflation is currently causing a lot of debate. On the one hand, the Producer Price Index (PPI) rose with a very high number (13.5 %, yoy) – the highest since 1995. Furthermore, October has been the tenth consecutive month with a rising PPP number. On the other hand, the Consumer Price Index (CPI) came in at only 1.5 % – a gigantic differential to the PPI which really points at both micro- and macroeconomic imbalances in the Chinese economy.

Conclusion – the Chinese economy has lost some momentum

Altogether, those written lines are only a very brief analysis of the Chinese economy. However, it may be somewhat difficult to finally come up in 2021 to the official GDP-growth goal at 6 % or more. Provided that the generally – in most countries and international organizations – predicted visible recovery of global growth can be verified, China could manage somewhat higher GDP growth in 2022 than the year before – particularly if willing to contribute to declining global political tensions.

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

 

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