From the demography-is destiny-folks at EXIT, February 12:
The Chinese have been on a generational bull run.
Like the Japanese, they spent thirty years clawing their way up from bottom-of-the-barrel low-cost, low-skill manufacturing, to become a genuine military, industrial, and technological challenger to the United States.
In fact, on the performance indicators that defined power in the 20th century, China already dwarfs the USA. Their standing army is roughly one-third larger. They produce nearly twice America’s overall manufacturing output, 10x our steel production, and 230x our shipbuilding capacity.
Of course, those indicators may not define success in the 21st century — but China has also reached parity or better in AI, robotics, and even the quintessentially American game of social media. They aren’t a low-tech, brute-force player anymore — they are approaching full-spectrum economic leadership.
Like America at the beginning of the 20th century, China has been peacefully expanding under the defensive umbrella of a declining naval and economic hegemon. Like the British Empire before it, America’s imperial commitments are becoming expensive and domestically unpopular, and China is openly preparing to take the wheel.
China is advancing on every front — except one.
According to Chinese government statistics, China’s population began declining in 2021, from a peak of 1.412 billion. Their workforce has been in decline since 2015.
This makes their situation massively different from America’s in 1914, because there are only two ways an economy can grow: through increased productivity per worker, or through natural increase (producing more workers.)
When a nation’s population is growing, they don’t just get more workers — they also get the natural stimulus of increased demand, as the growing, youthful workforce demands more homes, more electrical generation, more manufactured goods, expanded infrastructure, etc.
Conversely, when the population is declining, speculative and expansive investments become much more dangerous.
For instance, if you bought a house at the top of the inflated US real estate market in 2008, you could wait a few years for demand to catch up — but if you bought one of China’s 80 million vacant apartments, allegedly enough to house 3 billion people — those homes will never be occupied in your lifetime. They’ll literally rot and be reclaimed by nature first.
America has made empty promises to its retirees in the form of unfunded Social Security and Medicare entitlements — but China is performing a similar shell game in real estate.
China’s social programs for seniors are minimal, so workers must retire from their personal savings — but China severely restricts retail financial investing and capital outflows overseas, so most Chinese households’ primary investment vehicle is domestic real estate: 70% of Chinese household wealth is in their home(s), compared with 29% for US households.)
This is not equivalent to an “overheated” market that will crash and then recover: these investments are worth zero yuan, they will never be used by anyone. Building these fake projects “in the real world” with heavy machinery is arguably better than doing it with confabulated financial instruments (at least the machinery and labor training are theoretically good for something) — but the investments themselves are 100% fake.
And real estate is only an example of the larger phenomenon: capital markets depend on the promise of growth....
....MUCH MORE
Over the years we've had quite a few posts on demography, both regarding China in particular and the the world more generally.
Among the former the most stunning forecast is in January 2024's "How Serious Is China's Demographic Doom? Almost Beyond Comprehension".
The outro was How does a country lose 80% of their working-age population in 86 years?
