1.3 Billion: A Demographic Reminder

Every now and again, I like to take a step back and refocus on China demographics to bring to light the sheer scale of the country in terms of population and economic growth. I do this because there are many commentators who still question the whole China urbanization program, scratching their heads while myopically looking at the same handful of so-called ‘ghost cities’ (many of which are actually mere districts of much larger municipalities).

The above chart from Statista spells out the current demographic/economic situation in China very clearly. China has more than 1.3 billion people. To put it into perspective, imagine the U.S. with about 1 billion added inhabitants, now imagine trying to manage an economy with that many people growing at about 9%-10% per year while keeping unemployment down to around 4%. As one can see, this is not a simple task as the inflation rate shot up about 6% since 2009.

Rising inflation is one huge issue currently facing China policy makers. Another one, albeit less pressing at the moment, is the slowing rate of population growth. While the controversial one-child policy instituted over 30 years ago was a success from a macro policy perspective, the unforeseen social issues resulting from the policy (low number of females to males, the burden of being an only child in a family oriented society, etc…) foreshadows economic consequences 10-20 years down the line when there are not enough young workers to replace and take care of a gigantic aging population.

And from my own personal encounters, though the one-child policy eased up significantly in recent years, most aspiring young middle-class Chinese living in urban areas opt to wait to have children and when they do, limit themselves to one (even if they are no longer constrained by the one-child policy).  This has to do with several factors, including the pressure to move up the social ladder by buying a house and car, the cost of a child’s education, and the cost of taking care of two sets of aging parents.

In the meantime though, my conservative prediction is that China has about 5-10 years left of strong economic growth. The per capita GDP is still remarkably low, mostly due to the hundreds of millions still living in rural areas. The potential to earn much higher wages in urban areas (where salaries are raising rapidly)  ensures that there is a steady of influx of people into cities.

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