Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 519

China in advanced stage of demographic collapse

This is an edited transcript of a video talk given by geopolitical strategist, Peter Zeihan, on new Chinese demographic data.

Today we're breaking down the new demographic data from the Chinese space. This will allow us to make some much-needed updates to an already bleak assessment...and spoiler alert, it's going to get a lot worse.

Okay, let's start with this first graphic to show you where the official data had us as of a year and two years ago.

This narrowing for the bottom seven age blocks is the fastest aging workforce in the world and arguably the fastest one in human history. This indicates that the number of new workers coming in is so small compared to the number that are retiring that you're having massive increase in labor costs and from adjacent numbers that we do trust. I mean, Chinese data is always a little touch-and-go. But from the numbers that we do have that we do trust, which is labor costs, Chinese labor is increasing at the fastest pace of any country in any era at any time in history, including during the Black Death itself.

Since 2000 the cost of Chinese labor has gone up by about a factor of 15 while the size of the Chinese economy has only expanded by a factor of roughly 3.5 to 4. The Chinese are only an industrial power today under this data because of the sunk cost of the industrial plant that it took to build everything that's there in the first place.

Now, that's not nothing. That is huge. That's trillions of dollars, tens of trillions of dollars. And it's highly relevant. But most industries and most subsectors that have decided to relocate to other countries have discovered that they've got shorter, simpler supply chains, where there's a lot less of a political headache.

Okay, here is the new data. And as you can see that the number of children who are under age 5 has just collapsed and there are now roughly twice as many that are aged 15 as there are aged 5.

What happened back in 2017, well before COVID, is that we had a sudden collapse in the birth rate, roughly 40% over the next five years among the Chinese, the ethnic Han population and more than 50% among a lot of the minorities. And that is before COVID, which saw anecdotally the birth rate drop considerably more and before COVID, which probably raised the death rate considerably. We're now never going to get good data on death rate, or at least not anytime soon, because the Chinese, when they did the reopening, they just stopped collecting the data on deaths and COVID and everything because they didn't want the world to know how many Chinese died, so they don't know.

With this data, the snapshot in time, this is official state data, it's still probably not wildly accurate. We still have the Shanghai Academy of Sciences, which is like the biggest nerd group you've got in the country, saying that the country has overcounted their population under age 45 by over 100 million people in the aftermath of the one child policy. And so, really, what we need to consider is that that official data now at the very bottom, you need to play that up. And this last graphic shows you our internal estimate of where that is. Now, this is not official. Those yellow bars probably don't exist, but that is not what the official data is saying. This is an extrapolation from what the Shanghai Academy of Sciences is saying.

Anyway. Some version of this is probably the truth, which means that China aged past the point of demographic no return over 20 years ago. And it wasn't just this year that India became the world's most populous country. That probably happened roughly a decade ago. And it wasn't in 2018 that the average Chinese aged past the average American. That was probably roughly in 2007 or 2008. So, this is not a country that is in demographic decay. This is a country that is in the advanced stages of demographic collapse, and this is going to be the final decade that China can exist as a modern industrialized nation-state because it simply isn't going to have the people to even try.

For those of you who have business in China, you're becoming more and more aware of the political system, you're becoming aware that it's becoming illegal for foreigners to even access data, data that in most countries is publicly available. You now have on top of that to figure out that not only is the labor force never recovering and the labor costs you're having now are as low as they're ever going to be, consumption is as high as it's ever going to be. Even before you consider the political complications or issues with operating environment or energy access or geopolitical risks or reputational risks, the numbers just aren't there anymore.

You have to ask yourself why you're still there. Some cost of industrial plant? That's a reasonable answer. But it becomes less relevant with every passing year as everything else catches up.

 

Peter Zeihan, founder of Zeihan on Geopolitics, is a geopolitical strategist, speaker and author. This article is general information and does not consider the circumstances of any investor. This article is an edited transcript of Peter's video, New Chinese Demographic Data = Population Collapse, posted on 29 June 2023.

 

16 Comments
Martin
August 04, 2023

One problem of a shrinking population relates as much to lower tax receipts and reducing the velocity of money in the system. AI robots don’t spend money or pay tax.

David Millar
October 22, 2023

Martin you are spot on. Current economic growth models are based on consumption driving production. Not only does an ageing poplution cost more in healthcare and agedcare; consumption other than food declines dramatically.

jeff
August 04, 2023

So why is there 20% youth unemployment? The problem is not lack of population growth, the problem is too much debt. Immigration solves the debt problem by reducing everyones standard of living.

Jeremy Dawson
August 03, 2023

Pity he doesn't explain what the yellow bars are. Whatever they are is apparently something to do with what the Shanghai Academy of Sciences is saying, but is that meant to help us understand it?

Michael
October 17, 2023

The yellow bars are the official numbers that are almost certainly inflated and so are (young) people that don't really exist.
The authorities overstate their birthrates to get more funding each year... Its a lot of missing people! Especially if you've built thousands of apartments for their families...

mpang
July 30, 2023

" China in advanced stage of demographic collapse " - time will tell.
China and India have huge population. India has democratic government, China has one party government, different political system.
To me, what is more important is the standard & cost of living, literacy, health, basic freedom ( up to one to define ) and ability to lift oneself out of poverty & illiteracy. This is what counts.

Charley Panarello
July 28, 2023

This is American propaganda, with little credibility.

John Murphy
July 29, 2023

It isn’t automating any fasrer than other countries and slower than some, including the US. Its population is falling and ageing faster than most. Mass immigration is a solution but that would be fatal to the party, so, no.

Michael
October 08, 2023

They can't get ANY immigration in China let alone "mass"...

John Murphy
July 29, 2023

The article is completely consistent with s demographic statistics released by the Chinese state over the last year, so it isn’t US propaganda unless you think the PRC statistics people are US spies

graeme
July 30, 2023

good comment !

Lanche
July 31, 2023

Well said.

DougC
July 28, 2023

China (like many other economies) is certainly experiencing a reducing labour force but it appears it is automating/robotising its industrial production at a substantial rate to compensate for that reduction. Perhaps those who might ask themselves why they are still there are aware of the levels of productivity and innovation in China, the scale of the local and international markets and trade, and of the economics statistics such as in https://en.wikipedia.org/wiki/Economy_of_China. Headlines like “advanced stage of demographic collapse” might be a little premature.

Paul P
July 27, 2023

I’ve seen a lot written about the demographical difficulties facing China but at the same time we are seeing predictions around the impact that AI will have on the job market. My question is this - If there will be less need for working age labour in the medium term future then won’t the economies with less excess capacity be advantaged rather than disadvantaged?

Todd
July 28, 2023

Only if those countries are prepared to embrace innovation, however China under Xi is becoming more a mix of Putin's Russia and Kim's North Korea. Idealogical purity and loyalty to the leader is becoming more important than ability. Countries where it is counter productive to be too successful generally struggle to innovate.

Paul P
August 03, 2023

So, politics aside, any country with a reducing working age population who embraces innovation will be better off than a country with an increasing working age population if all else is equal. By that argument it seems like countries with a focus on high levels of immigration may be better off directing their energy into rapid education of the youngest demographic instead, along with strong support for new technologies.

 

Leave a Comment:

     

RELATED ARTICLES

Why Australia’s roaring population growth won’t last

Three themes and companies to play China's rise

Embracing the bright side of population decline

banner

Most viewed in recent weeks

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

Welcome to Firstlinks Edition 566 with weekend update

Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.

  • 27 June 2024

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.

How not to run out of money in retirement

The life expectancy tables used throughout the financial advice and retirement industry have issues and you need to prepare for the possibility of living a lot longer than you might have thought. Plan accordingly.

The iron law of building wealth

The best way to lose money in markets is to chase the latest stock fad. Conversely, the best way to build wealth is by pursuing a timeless investment strategy that won’t be swayed by short-term market gyrations.

Latest Updates

Investment strategies

Have value investors been hindered by this quirk of accounting?

Investments in intangible assets are as crucial to many companies as investments in capital equipment. The different accounting treatment of these investments, however, weighs on reported earnings and could render ratios like P/E less useful for investors.

Investment strategies

Investors are threading the eye of the needle

As investors cram into ever narrower areas of the market with increasingly high valuations, Martin Conlon from Schroders says that sensible investing has rarely been such an uncrowded trade.

Economy

Persistent, but not permanent

There is universal consensus that the Earth is experiencing climate change. Yet there is far more debate about how this will impact different economies across the globe. New research sheds more light on the winners and losers.

SMSF strategies

How super members can avoid missing out on tax deductions

Claiming a tax deduction for personal super contributions can end in disappointment if it isn't done correctly. Julie Steed looks at common pitfalls and what is required for a successful claim.

Investment strategies

AI is not an over-hyped fad – but a killer app might be years away

The AI investment trend looks set to continue for years but there is only room for a handful of long-term winners. Dr Kevin Hebner also warns regulators against strangling innovation in the sector before society reaps the benefits.

Retirement

Why certainty is so important in retirement

Retirement is a time of great excitement but it is also one of uncertainty. This is hardly surprising given the daunting move from receiving a steady outcome to relying on savings and investments.

Economy

This vital yet "forgotten" indicator of inflation holds good news

Financial commentators seem to have forgotten the leading cause of inflation: growth in the supply of money. Warren Bird explains the link and explores where it suggests inflation is headed.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.