Guess what? I'm not an economist! Nevertheless, I urge you to read Zerohedge's article on China's forthcoming census report. The short story is this: While everyone knew that within the next five years China's overall population--which is already rapidly aging--would actually begin to decline, it's being reported by the Financial Times that that process began last year.
Population decline in a country attempting to overtake the US economically and as a major strategic competitor is a very big deal, because it exacerbates already existing structural weaknesses:
￼China is battling not one but three vicious demons. The interconnected issues of insurmountable debts, deflation, and demographics threaten to sap the world's future growth potential.
Fending off the 3 D's: debts, deflation, and demographics requires the People's Bank of China to slash borrowing costs and unleash an enormous amount of credit into the local economy to cover up the faltering demand that usually persists with demographic challenges.
The question we should be asking is China really on the "rise," as President Xi Jinping believes ...
Many of us will remember the good old days of Japan Inc., back in the 80s, and that's exactly the parallel that analysts are drawing to the bind the Chinese find themselves in. As Japan Inc. discovered, battling two vicious demons--debt and deflation--is bad enough, but when demographic collapse is added into the equation everything gets worse. The problem for China is that, despite the perception of China as a modern economic powerhouse, it is actually nowhere near as advanced as was Japan. In particular, China has a vast poor and aging work force population--and no definite plans in place to provide for their old age.
In other words, China is caught in the classic "Wealth Trap"--it is growing old before it grows rich. Worse, if the Financial Times is right, China just had five years taken away during which it hoped to prepare for a (hopefully) softer landing. The possibility of social unrest looms, as social pressures increase within China. This is happening at a time when China is facing many challenges and is showing an increasingly less congenial face to the rest of the world--and in particular to the Developed World. Did you ever wonder why wealthy Chinese are buying up real estate in the US and getting their children educated at our universities--hopefully with jobs in the US to follow--and why birth tourism to obtain a citizenship hook for the entire family is such a big deal? Wonder no more.
This is a major setback for Xi and the Communist Party elite:
The problem for China's rulers--one that they are well aware of, but too late--is that demographic trends are basically irreversible, certainly in anything remotely like the short term. Like Japan, beginning in the 80s, a still poor China is faced with the stark future of decades (at a minimum) of debt, deflation, and demographic decline. Worse, China will be burdened by a vast aging work force that it will be hard pressed to provide for, and a disillusioned and embittered cadre of young people who see little or no future. Even the prospects for marriage are dimming for many younger men, due to the Communist Party's insane past policies.
All of this also has implications for the world economy. China will remain a major fraction of the world economy, and a major supplier of manufactured goods--despite its problems. What may we or our children be faced with?
Add social unrest into the mix, stir well, and see what happens.
The question for the US is, are we immune from similar pressures? Can we increase debt forever without falling into a deflationary trap? Will importing the poor of the world resolve our own demographic trends?