China has always been known for its massive population
size. It's home to 1.41 billion people.
That means nearly one out of every five human beings
on earth lives in China.
But now that number is shrinking for the first time
since 1961.
China's population has declined for the first time
in more than 60 years, according to numbers
released Tuesday by China's National Bureau of
Statistics. The population in 2022 was just over 1.4
billion, a drop of 850,000 from a year prior.
So the recent news that Chinese population has
declined for the first time in decades in many ways is a
big deal because it marks the end of this era of rapid
growth and of cheap labor.
If the labor costs in China are no longer cheaper than
other countries, China will lose its comparative
advantage in manufacturing goods for the rest of the
world. Consequently, the prices of your iPhones, the
prices of your cars and many of these things are
going to rise. And so the global consumer is going to
feel what's happening.
So what's happening in the bedrooms in China is
actually affecting what's happening in the rest of the
world.
China has been implemented this one-child policy for 35
years from 1980 to 2015.
The reason for this is back in 1980, the Chinese
government observed or predicted that in the
future, China's population growth rate will be so high
and then there will be the famine problem.
Then the agricultural production will not meet the
people's wants and needs.
Many couples therefore chose to only have a son
when restricted to just a one-child household.
So consequently, after 30-something years, what you
do have is a huge situation of missing women and surplus
bachelors, something like 30 million surplus men who
cannot find brides.
That obviously has a lot of consequences for how do you
make future babies for China, right?
No women. That's a big problem. It cost a
population to become too male, too old, and too few.
Reasons why the younger generation decided not to
respond to the policy changes.
Number one is the sheer cost of living.
Just an ordinary city, if you buy a property, you're
looking at 30 years of commitment to pay off your
mortgage. So this is a huge burden.
In rural China, things are slightly different because
housing is cheap.
However, education is a problem and if you want to
send your kids to secondary schools or universities, you
must leave your village.
You can imagine then boarding costs, all the
fees. This all build up.
Although the government relaxed, relaxes one-child
policy, two even three-child policy.
But still we did not observe much effect out of
it. One reason is COVID recently, especially for the
year 2022, because 2022, the China still implemented
this very stringent zero-covid policy.
So most of the people live in a very, extremely
inconvenient life and many people got laid off because
of this long time no show at work.
That's why the birth rate in the year 2022 is very
low. So from the domestic perspective, the real estate
market, which was booming for the last 30 years, your
first generation of homeowners coming in is now
stalled, partly as a result of COVID, but also partly as
a result of a housing crisis and also partly
because of the population growth slowing down.
That's a long-term economic outlook that it's not
helpful.
Aging is catching up in China.
It actually affects the quality of population, and
they are not as productive as young generation.
The aging population can make the government spend a
lot of money on the welfare expenditure.
They are paying more money for the Social Security,
Medicaid, Medicare and etcetera.
And also population shrinks, that means tax
payers shrinks.
So lower amount of taxpayers indicate a lower
tax revenue and then higher government expenditure.
So the government budget deficit will be the result.
Especially the last 25 years, China has embedded
itself into global supply chains.
And so we felt that very acutely right out of the
COVID pandemic, particularly as vaccines
were rolled out and consumer spending boomed.
There were bottlenecks at ports, there were
semiconductor chip shortages as inputs to
automobiles. And so the integrated success of
globalization has now become a threat to the
resilience of global supply chains.
Now, China had for a long time been a
manufacturing-based economy, so the source of cheap labor
was very helpful to grow.
And that's why very many of the world's factories
relocated there. That's why it became the world's
manufacturing floor. That's why your iPhones and your
cars and your solar panels are all made in China.
And that's why we've all paid relatively cheaper
costs for it.
Unlimited supply of cheap labor from rural China is
the engine of China's exports.
Now, if you switch that off, China's cheap
labor-based manufacturers will soon kind of decline.
And this will cause some kind of famine in goods.
Certain things you can get very cheaply -not anymore.
Cheap goods made in China - that party is over.
India is poised to dominate the global economy for the
rest of this century.
Why? Because its population will overtake China this
year, in 2023, and in the next few years, its
working-age population will become the largest in the
world now. India still has demographics so that it will
continue to grow and add population in the subsequent
decades.
Indians are young.
The average age is under 30.
So really a vibrant, young, educated workforce.
I won't be surprised in the next decade India will be
the workshop of the world.
Population is only going to be one dimension of this.
We have to think about infrastructure, about gender
roles, gender equality, about the nature of the
economy. And in that sense, of course, there are still
fundamental differences between China and India.
And I think in many ways, India still has a lot of
ground to gain.
Just because you have plenty of young workers doesn't
mean you have the roads or the factories or the
financing or the logistics to take advantage of all
those things and really make it come together.
So yeah, there's not that expectation at all.
This population decline in this process of aging is
almost irreversible.
We can try to slow it down a little bit through
increasing fertility rates, but that's not really the
solution to anything because of course babies
don't work, babies don't pay tax.
And so we need to do is tackle some of the
challenges of today.
And that will require things like reforming the
pension system, making sure that their health and social
welfare systems are more adequate, but then also
ensuring that China can do more with a smaller
population, involve increasing productivity,
maybe reforming the education system and so on.
Suppose if the labor supply reaches a critically low
point, the Chinese government might consider
importing cheaper labor from other countries to
lower the cost of production and to maintain
its comparative advantage of its domestic products.
And this will bring about even more benefits to other
countries with cheaper labor.
Foreign companies, foreign governments are aware that
things are going in one direction in China at the
moment.
A lot of companies are going to rethink their whole
business model, whether they would place any
manufacturing or resourcing outside of China, whether
they would be looking at other sources of consumption
growth.
The damage has been done.
Nothing you can do about it.
You just have to minimize the damage in the future.