Traffic in Beijing. Source: Wikimedia.
People use to worry about overpopulation. You still see the bumper stickers: “Two’s Company, 7 Billion’s a Crowd.” But not so much anymore. Global population growth has slowed dramatically. Urban lifestyles, better health care, and birth control have dramatically reduced population growth just about everywhere. In the 1960’s, the world’s population was growing at over 2% per year. Now the growth rate is just over 1%, and it’s likely to keep falling to just above zero by the end of the current century.
In China this has been especially dramatic. In 1970 their population was growing by almost 3% per year. The growth rate is now 0.5% per year. They still have over 1.4 billion residents, and the size of their population means that their population is stoll growing by a lot of people. But the growth rate is a lot slower. Again, urbanization and health care had an impact, but so did China’s national One-Child policy, a complicated system of rewards and penalties designed to limit family size in both urban and rural areas.
China’s Population since 1960. Source: World Population Prospects, Wikipedia
Now a lot of economists worry that this slowing growth rate will handicap China’s economy. Their population is aging, and the number of workers available to support both young and older dependents is falling rapidly.
The demographic headwinds that come from having an older population can be offset by people working longer. China’s official retirement age will likely increase, and – like Japan and Korea – a rising proportion of older residents will require that people delay retirement and extend their working lives.
China has one key advantage as it pursues continued economic growth: urbanization. As workers continue to migrate to the cities, they become far more productive as they switch to more capital-intensive jobs. The consensus growth rate of almost 6% will depend on high productivity growth going forward, as the population is likely to grow only modestly going forward, despite the relaxation of the one-child policy.
As the population ages and urbanizes, spending will have to shift from physical infrastructure to social infrastructure. Putting a safety net and national retirement system in place will be a key way to free up China’s elevated savings rate and allow more of that capital to cycle through their economy. But the transition from an investment-led economy to a consumption-based economy – like all transitions – is fraught with risk.
China population density. Source: Wikipedia
Demography isn’t destiny, if you manage the direction. China’s population is aging, but so is Japan and Korea, and folks aren’t discussing those societies as demographic time-bombs. It’s just that with China the stakes are very high, for their own economy and for the rest of the world. More than a billion lives matter.
Douglas R. Tengdin, CFA
Charter Trust Company
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