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05/27/2016

Demographics

The following is on China’s serious demographic issue, especially when compared with the U.S., from a piece in the June 2016 issue of The Atlantic by Howard W. French.

[Excerpts]

Under President Xi Jinping, China has until very recently appeared to be a global juggernaut – hugely expanding its economic and political relations with Africa; building artificial islands in the South China Sea, an immense body of water that it now proclaims almost entirely its own; launching the Asian Infrastructure Investment Bank, with ambitions to rival the World Bank.  The new bank is expected to support a Chinese initiative called One Belt, One Road, a collection of rail, road, and port projects designed to lash China to the rest of Asia and even Europe.  Projects like these aim not only to boost China’s already formidable commercial power but also to restore the global centrality that Chinese consider their birthright.

As if this were not enough to worry the U.S., China has also showed interest in moving into America’s backyard. Easily the most dramatic symbol of this appetite is a Chinese billionaire’s plan to build across Nicaragua a canal that would dwarf the American-built Panama Canal.  But this project is stalled, an apparent victim of recent stock –market crashes in China.

Many economists believe that these market plunges are early manifestations of a historic showdown in the Chinese economy, one that is bringing the country’s soaring growth rates down to earth after three decades of expansion.  But the current showdown pales in comparison with a looming societal crisis: In the years ahead, as China’s Baby Boomers reach retirement age, the country will transition from having a relatively youthful population, and an abundant workforce, to a population with far fewer people in their productive prime.

The frightening scope of this decline is best expressed in numbers. China today boasts roughly five workers for every retiree.  By 2040, this highly desirable ratio will have collapsed to about 1.6 to 1.  From the start of this century to its midway point, the median age in China will go from under 30 to about 46, making China one of the older societies in the world. At the same time, the number of Chinese older than 65 is expected to rise from roughly 100 million in 2005 to more than 329 million in 2050 – more than the combined populations of Germany, Japan, France, and Britain.

The consequences for China’s finances are profound. With more people now exiting the workforce than entering it, many Chinese economists say that demographics are already becoming a drag on growth.  More immediately alarming are the fiscal costs of having far more elderly people and far fewer young people, starting with the expense of creating the country’s first modern national pension system....

Awakening belatedly to its demographic emergency, China has relaxed its one-child policy, allowing parents to have two children.  Demographers expect this reform to make little difference, though. In China, as around the world, various forces, including increasing wages and rising female workforce participation, have, over several decades, left women disinclined to have large families. Indeed, China’s fertility rate began declining well before the coercive one-child restrictions were introduced in 1978.  By hastening and amplifying the effects of this decline, the one-child policy is likely to go down as one of history’s great blunders.  Single-child households are now the norm in China, and few parents, particularly in urban areas, believe they can afford a second child.  Moreover, many men won’t become fathers at all: Under the one-child policy, a preference for sons led to widespread abortion of female fetuses.  As a result, by 2020, China is projected to have 30 million more bachelors than single women of similar age.

“It really doesn’t matter what happens now with the fertility rate,” a demographer at the Chinese Academy of Social Sciences told me.  “The old people of tomorrow are already here.”  She predicted that in another decade or two, the social and fiscal pressures created by aging in China will force what many Chinese find inconceivable for the world’s most populous nation: a mounting need to attract immigrants.  “When China is old, though, all the countries we could import workers from will also be old,” she said. “Where are we to get them from? Africa would be the only place, and I can’t imagine that.”....

That the U.S. is not facing population shrinkage is due largely to immigration. America’s fertility rate, while higher than that of China and many European countries, is still below the threshold required to avoid shrinkage, about 2.1 children per woman. By keeping its doors relatively open to newcomers, America is able to replenish itself.  If the country were instead to shut its doors, its population would plateau and its median age would climb more steeply.  According to the Pew Research Center, immigrants and their children and grandchildren will account for 88 percent of U.S. population growth over the next 50 years.

These new arrivals are widely portrayed in a variety of ways that fail to convey their true importance to the American economy and future.  Sometimes they are thought of as undesirables who get by doing scut work.  Other times they are depicted as taking good jobs, and opportunities from citizens....

The truth is broader and far less exotic. America assimilates outsiders on a scale matched by no other powerful country: Immigrants inhabit every rung of society and work in every sector. Immigration, perhaps more than any other single factor, sustains American prosperity.  And immigration will, shrieking campaign rhetoric notwithstanding, spare the United States the fate now threatening to engulf its competitors.

---

Wall Street History will return in two weeks.

Brian Trumbore



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-05/27/2016-      
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Wall Street History

05/27/2016

Demographics

The following is on China’s serious demographic issue, especially when compared with the U.S., from a piece in the June 2016 issue of The Atlantic by Howard W. French.

[Excerpts]

Under President Xi Jinping, China has until very recently appeared to be a global juggernaut – hugely expanding its economic and political relations with Africa; building artificial islands in the South China Sea, an immense body of water that it now proclaims almost entirely its own; launching the Asian Infrastructure Investment Bank, with ambitions to rival the World Bank.  The new bank is expected to support a Chinese initiative called One Belt, One Road, a collection of rail, road, and port projects designed to lash China to the rest of Asia and even Europe.  Projects like these aim not only to boost China’s already formidable commercial power but also to restore the global centrality that Chinese consider their birthright.

As if this were not enough to worry the U.S., China has also showed interest in moving into America’s backyard. Easily the most dramatic symbol of this appetite is a Chinese billionaire’s plan to build across Nicaragua a canal that would dwarf the American-built Panama Canal.  But this project is stalled, an apparent victim of recent stock –market crashes in China.

Many economists believe that these market plunges are early manifestations of a historic showdown in the Chinese economy, one that is bringing the country’s soaring growth rates down to earth after three decades of expansion.  But the current showdown pales in comparison with a looming societal crisis: In the years ahead, as China’s Baby Boomers reach retirement age, the country will transition from having a relatively youthful population, and an abundant workforce, to a population with far fewer people in their productive prime.

The frightening scope of this decline is best expressed in numbers. China today boasts roughly five workers for every retiree.  By 2040, this highly desirable ratio will have collapsed to about 1.6 to 1.  From the start of this century to its midway point, the median age in China will go from under 30 to about 46, making China one of the older societies in the world. At the same time, the number of Chinese older than 65 is expected to rise from roughly 100 million in 2005 to more than 329 million in 2050 – more than the combined populations of Germany, Japan, France, and Britain.

The consequences for China’s finances are profound. With more people now exiting the workforce than entering it, many Chinese economists say that demographics are already becoming a drag on growth.  More immediately alarming are the fiscal costs of having far more elderly people and far fewer young people, starting with the expense of creating the country’s first modern national pension system....

Awakening belatedly to its demographic emergency, China has relaxed its one-child policy, allowing parents to have two children.  Demographers expect this reform to make little difference, though. In China, as around the world, various forces, including increasing wages and rising female workforce participation, have, over several decades, left women disinclined to have large families. Indeed, China’s fertility rate began declining well before the coercive one-child restrictions were introduced in 1978.  By hastening and amplifying the effects of this decline, the one-child policy is likely to go down as one of history’s great blunders.  Single-child households are now the norm in China, and few parents, particularly in urban areas, believe they can afford a second child.  Moreover, many men won’t become fathers at all: Under the one-child policy, a preference for sons led to widespread abortion of female fetuses.  As a result, by 2020, China is projected to have 30 million more bachelors than single women of similar age.

“It really doesn’t matter what happens now with the fertility rate,” a demographer at the Chinese Academy of Social Sciences told me.  “The old people of tomorrow are already here.”  She predicted that in another decade or two, the social and fiscal pressures created by aging in China will force what many Chinese find inconceivable for the world’s most populous nation: a mounting need to attract immigrants.  “When China is old, though, all the countries we could import workers from will also be old,” she said. “Where are we to get them from? Africa would be the only place, and I can’t imagine that.”....

That the U.S. is not facing population shrinkage is due largely to immigration. America’s fertility rate, while higher than that of China and many European countries, is still below the threshold required to avoid shrinkage, about 2.1 children per woman. By keeping its doors relatively open to newcomers, America is able to replenish itself.  If the country were instead to shut its doors, its population would plateau and its median age would climb more steeply.  According to the Pew Research Center, immigrants and their children and grandchildren will account for 88 percent of U.S. population growth over the next 50 years.

These new arrivals are widely portrayed in a variety of ways that fail to convey their true importance to the American economy and future.  Sometimes they are thought of as undesirables who get by doing scut work.  Other times they are depicted as taking good jobs, and opportunities from citizens....

The truth is broader and far less exotic. America assimilates outsiders on a scale matched by no other powerful country: Immigrants inhabit every rung of society and work in every sector. Immigration, perhaps more than any other single factor, sustains American prosperity.  And immigration will, shrieking campaign rhetoric notwithstanding, spare the United States the fate now threatening to engulf its competitors.

---

Wall Street History will return in two weeks.

Brian Trumbore