China’s economic engine is about to start shrinking

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For several decades, China has been converging economically with the United States. Depending on how you measure it, its gross domestic product has already surpassed that of its big global rival or is getting closer and closer. Average incomes are still much lower in China, but according to another key measure of living standards, life expectancy, China has matched the United States in the pandemic year of 2020.

However, as this century progresses, it seems that China will experience economic convergence with the United States of a different, less positive kind. The country’s working-age population of nearly one billion (defined here as those aged 15-64) has been key to its economic rise, allowing it to become the workshop of the world and a vast consumer market . But according to population projections released last week by the United Nations, this cohort will begin to decline rapidly in the 2030s, and shrink by nearly two-thirds by the end of the century. While America’s working-age population is expected to be about the same in 2100 as it is today, China’s will shrink from more than four times to less than twice. Add to that Canada and Mexico, which are not exactly in the same labor market as the United States but share a free trade zone, and China’s working-age population is expected to be only 1.2 times more important.

These projections, taken from the “medium scenario” of UN forecasters, are probably too optimistic about demographic trends in China. They assume that the country’s fertility rate will rebound from its steep decline in recent years and approach that of the United States as the century progresses.

Projections may be overly optimistic about fertility trends in the United States as well, but that country can at least count on another source of population growth that China hasn’t embraced and probably won’t in the future. future: large-scale immigration.

The UN also proposes a “low fertility scenario” in which birth rates stabilize at lower levels in China and the United States. China sees its working-age population drop by more than 80%, and that of North America exceeds it in 2097.

The year 2097 is a long way off, of course, and none of that – beyond the 2030s decline in China’s working-age population that has already been priced in by the recent drop in births – does is doomed. The UN has been making long-term population projections since the 1950s, and while these have been quite good at capturing the overall trajectory of global population growth, they have often been much less precise in detail. The disappearance of two-thirds or more of the working-age population envisaged for China is unprecedented in the modern world, and the threat of it could lead to political and societal changes that would slow or even halt the trend. Many other things could happen in the next 75 years to supersede these forecasts: climatic disasters, world wars, alien invasions, the singularity, etc.

In addition, the UN population forecasts contain other insights into future labor supply that could turn out to be far more important than the comparison between China and the United States. Africa is set to be the big winner, with a working-age population expected to nearly equal that of Asia by the end of the century. (For its continental/regional groupings, the UN places Mexico in Latin America and defines “North America” ​​as the United States, Canada, Bermuda, Greenland, and Saint Pierre and Miquelon .)

Yet with the declining working-age population that China faces in a few years already underway elsewhere in East Asia – Japan’s population aged 15-64 has fallen 17% since 1994, while that from South Korea and Taiwan appear to have peaked in 2017 and 2016, respectively. — the region’s transition from growth to contraction is going to be hard to ignore. Here is another striking comparison, which I ran back to 1950 to get the full effect.

The rise of East Asia has perhaps been the most significant global economic trend of the past half-century. What does this imply about its decline?

By “decline” I don’t necessarily mean anything like the fall of Rome. Japan remains an advanced and prosperous economy despite its quarter-century (so far) of declining working-age population. But its share of nominal global GDP has fallen to 5.1% in 2021, from 17.9% in 1994. All rich countries have given up their share of GDP to make room for China and other emerging markets. , but the United States fell only from 26.1% to 23.9%, and the share of the European Union fell from 25.7% to 17.8%.

In 2021, China’s share of global GDP was 18.5% and its share of the global working-age population was 19.2%. The latter percentage is expected to fall to 6.1% by the end of the century. One way for China’s leaders to prevent an equivalent decline in GDP would be to make reforms and investments that would keep per capita incomes rising faster than the global norm. But as my colleague Hal Brands, a Bloomberg Opinion columnist, and Michael Beckley, a researcher at Tufts University of China, argued in Foreign Policy last year, fear of reduced economic influence in the he future could also elicit a less productive and more aggressive response from outside: “The most dangerous trajectory in world politics is a long ascent followed by the prospect of a sharp decline.

The United States does not face such a prospect, at least not for demographic reasons. We can even imagine that it revives with demographic growth thanks to a new adhesion to immigration, to an environment more favorable to parents or to both. At a time of great pessimism among Americans, this is an interesting prospect to consider.

More other writers at Bloomberg Opinion:

Joe Biden is fighting the wrong battle against China: Minxin Pei

Thugs for hire hint at a more unstable China: Matthew Brooker

Xi Jinping sends mixed messages to investors: Shuli Ren

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. Former editorial director of Harvard Business Review, he has written for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market”.

More stories like this are available at bloomberg.com/opinion

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