The China Hype, Part 2
by James Na ~ March 9th, 2006. Filed under: China, Economics, Geopolitics.Earlier I referred to “The China Hype.”
Ian Bremmer, the president of Eurasia Group writes of the looming demographic problems of “not enough workers” in China and India (h/t Charles Ganske).
China’s vast supply of cheap labor and India’s army of capable engineers have attracted enormous flows of foreign investment to their countries over the past several years. Analysts have dubbed the result the “Asian miracle.” But beneath our assumptions about the future of economic growth in these two countries lie important questions about how long these trends can remain quite so miraculous. [snip]The advantages of investment in China are well-known. Less well-understood is a looming demographic challenge that could undermine China’s ability to grow rich before its population grows old. Emerging-market investors in search of an alternative should note that India faces a demographic challenge of its own.
Recent reports from researchers at Deutsche Bank and Goldman Sachs suggest that China’s workforce may begin to shrink sooner than we thought. According to Deutsche Bank’s analysis, the percentage of working-age Chinese in the population (those aged 15 to 64) will peak around 2010 at 72.2 percent. Over the next 40 years, that number will fall steadily to just 60.7 percent, according to U.N. forecasts. The steep drop is due in large part to China’s one-child policy, first implemented in 1979. Also, many Chinese retire before they are 64; China’s current retirement age is 50 for most women and 60 for most men.
As a believer in chaos theory, I am generally wary of long-term projections when there are so many variables at work.
I remain unconvinced that the two variables cited as being responsible for this prediction — China’s one child policy and early retirement age — will hold.
Already there are signs that the one child policy is being breached — particularly by those in China’s upperclass who are able to bribe officials (this will likely further increase social tension, however). Likewise, as China’s economy matures, the retirement age will likely change.
Indeed, in my view, the demographic challenge, particularly in view of the male-female gap, will not necessarily be a directly economic one, but a social-cultural one.
What’s more, as China’s economy has grown, so has the level of social unrest within the country. The number of what the Chinese government calls “mass group incidents” has risen by about 10 percent a year for more than a decade. In 2004, that number reached 74,000 and involved some 3.7 million people, according to the Chinese security minister. That’s more than 200 protests across the country per day, involving an average of 50 people.
China is already suffering from a great deal of social tension that generally goes unreported in the mainstream media in the West. I suspect that the demographic changes in China will further exacerbate the strain of the already tense political and social dynamic.
March 9th, 2006 at 4:03 pm
It will also be interesting to see how the lack of marriageable females for unmarried males works out in China. I can only imagine what the social implication for unhappy, unmarried, unmotivated males would be. We may see the “Angry Asian Male” syndrome arise in China.
March 9th, 2006 at 5:05 pm
Many of those unmarried Chinese males were also raised as an only child who was spoiled rotten. That’s a recipe for a lot of anti-social behavior in a country that’s based on socialism. There are signs of that already, as shown in embezzlement, personal greed, corruption, and the increase in criminal mobs.
March 9th, 2006 at 9:39 pm
There are signs of that already, as shown in embezzlement, personal greed, corruption, and the increase in criminal mobs.
Interesting. Would you apply that same reasoning and conclusion to explain the similar situation in South Korea given its own low birth rates and 112 to 100 boy/girl birth ratios?
March 9th, 2006 at 11:36 pm
Ziggy: There are similarities between South Korea and China, but China’s situation is much more extreme. China has one of the biggest gaps between rich and poor, and experts consider this as a prelude to social upheaval. The problem for South Korea is dealing with their extremely poor brethren in the North.
March 10th, 2006 at 12:40 am
Mi-Hwa.
Makes sense. Thanks for the clarification.
March 10th, 2006 at 3:47 am
The real irony is that Mao encouraged the Chinese population to have lots of children, understanding - correctly - that countries with large populations are powerful countries, even while sorely mismanaging the economy. China’s current rulers are doing a great job of managing the economy, but are encouraging Chinese families to have no more than one child - something that will lead to economic disaster in the decades ahead. China doesn’t have too many people - its population density is 1/3 of Taiwan’s, and lower than that of the major European powers. What it has too many of is interfering bureaucrats who think of themselves as its imperial mandarins used to think of themselves - as the owners of the Chinese people.
March 10th, 2006 at 10:06 am
The ideal birth rate is 2 per couple, which is just enough to prevent population implosion, but not enough to create population explosion.
Gender discrimination against females causes gender selection preferring males, which creates gender imbalance, and this causes more problems between males and females. There’s a cause and effect for every problem, and the root problem is gender discrimination, which is more prevalent in Asia.
March 10th, 2006 at 2:31 pm
While China’s population might be ageing, you also need to factor one thing into the equation that will stabilitze this, to some extent at least, this being effifciency.
Right now China is probably one of the least efficient countries on the planet.
If it take one person to do the job in the west, it takes 3 to do it in China, and another two to supervise.
China’s work force may begin be shrinking in comparison to its working population, but as China develops each individual worker becomes more productive.
Mechanization, improved training, multi-skilling, and more modern business practices will all help to balence the books and will allow China to get more productive work out of fewer workers.
March 10th, 2006 at 6:58 pm
Productivity is important, but China should not exploit workers, as is happening now. Chinese workers are forced to work a lot of overtime, and their wages are often withheld by the companies, who may never pay them back. Some low-paid Chinese workers are realizing how they are getting screwed, and they are returning to their homes in the rural areas. Chinese workers for Wal-Mart are receiving wages way below the minimum, because of a special deal between China and Wal-Mart. Also, prisoners are forced to work as near-slaves.
China has become the factory for the world, but this comes at the expense of millions of exploited workers and massive pollution.
March 13th, 2006 at 3:16 am
I agree with ACB on this one to the extent that as China’s economy matures more, its labor dynamic will mature too.
This is why I discount the economic threat theory of demographics in China.
My concern is that the demographic trends mentioned in the entry will exacerbate growing social tension, esp. the urban-rural prosperity gap.
With a significant imbalance in male-female ratio, Chinese rural males will find it even less likely to find wives in the future, on top of earning less than their city brethren.
Considering that the rural China is already bubbling with tension over the gap between expectation and actual gain, imagine what this added socio-demographic dynamic would do.
April 4th, 2006 at 12:58 am
The China Hype, Part 2
The China Hype, Part 2
The China Hype, Part 2
[…] However, I remain unconvinced of the idea that China will go bust because of demographic problems. The assumptions behind such a prediction are usually about China’s one-child policy and early retirement age (see The China Hype, Part 2), both of which will likely evolve as China’s economy matures. Besides, you know that kind of “not enough cheap labor” argument is stale when even the New York Times gets in on it (Chinese businessmen can always go to Vietnam for cheaper labor; they already do). […]
April 14th, 2006 at 6:45 pm
The China Hype, Part 2
The China Hype, Part 2
The China Hype, Part 2
[…] Parts 1, 2 and 3 are here, here and here, respectively. […]