China has always been known
for its massive population size. It's home to 1.41
billion people. That means nearly one out
of every five human beings on earth lives in China. But now that number is
shrinking for the first time since 1961. China's population has
declined for the first time in more than 60 years,
according to numbers released Tuesday by China's
National Bureau of Statistics. The population
in 2022 was just over 1.4 billion, a drop of 850,000
from a year prior. So the recent news that
Chinese population has declined for the first time
in decades in many ways is a big deal because it marks
the end of this era of rapid growth and of cheap labor. If the labor costs in China
are no longer cheaper than other countries, China will
lose its comparative advantage in manufacturing
goods for the rest of the world. Consequently, the
prices of your iPhones, the prices of your cars and
many of these things are going to rise. And so the
global consumer is going to feel what's happening. So what's happening in the
bedrooms in China is actually affecting what's
happening in the rest of the world. China has been implemented
this one-child policy for 35 years from 1980 to 2015. The reason for this is back
in 1980, the Chinese government observed or
predicted that in the future, China's population
growth rate will be so high and then there will be the
famine problem. Then the agricultural
production will not meet the people's wants and needs. Many couples therefore
chose to only have a son when restricted to just a
one-child household. So consequently, after
30-something years, what you do have is a huge situation
of missing women and surplus bachelors, something like
30 million surplus men who cannot find brides. That obviously has a lot of
consequences for how do you make future babies for
China, right? No women. That's a big
problem. It cost a population to become too
male, too old, and too few. Reasons why the younger
generation decided not to respond to the policy
changes. Number one is the sheer
cost of living. Just an ordinary city, if
you buy a property, you're looking at 30 years of
commitment to pay off your mortgage. So this is a huge
burden. In rural China, things are
slightly different because housing is cheap. However, education is a
problem and if you want to send your kids to secondary
schools or universities, you must leave your village. You can imagine then
boarding costs, all the fees. This all build up. Although the government
relaxed, relaxes one-child policy, two even
three-child policy. But still we did not
observe much effect out of it. One reason is COVID
recently, especially for the year 2022, because 2022,
the China still implemented this very stringent
zero-covid policy. So most of the people live
in a very, extremely inconvenient life and many
people got laid off because of this long time no show
at work. That's why the birth rate
in the year 2022 is very low. So from the domestic
perspective, the real estate market, which was booming
for the last 30 years, your first generation of
homeowners coming in is now stalled, partly as a result
of COVID, but also partly as a result of a housing
crisis and also partly because of the population
growth slowing down. That's a long-term economic
outlook that it's not helpful. Aging is catching up in
China. It actually affects the
quality of population, and they are not as productive
as young generation. The aging population can
make the government spend a lot of money on the welfare
expenditure. They are paying more money
for the Social Security, Medicaid, Medicare and
etcetera. And also population
shrinks, that means tax payers shrinks. So lower amount of
taxpayers indicate a lower tax revenue and then higher
government expenditure. So the government budget
deficit will be the result. Especially the last 25
years, China has embedded itself into global supply
chains. And so we felt that very
acutely right out of the COVID pandemic,
particularly as vaccines were rolled out and
consumer spending boomed. There were bottlenecks at
ports, there were semiconductor chip
shortages as inputs to automobiles. And so the
integrated success of globalization has now
become a threat to the resilience of global supply
chains. Now, China had for a long
time been a manufacturing-based economy,
so the source of cheap labor was very helpful to grow. And that's why very many of
the world's factories relocated there. That's why
it became the world's manufacturing floor. That's
why your iPhones and your cars and your solar panels
are all made in China. And that's why we've all
paid relatively cheaper costs for it. Unlimited supply of cheap
labor from rural China is the engine of China's
exports. Now, if you switch that
off, China's cheap labor-based manufacturers
will soon kind of decline. And this will cause some
kind of famine in goods. Certain things you can get
very cheaply -not anymore. Cheap goods made in China -
that party is over. India is poised to dominate
the global economy for the rest of this century. Why? Because its population
will overtake China this year, in 2023, and in the
next few years, its working-age population will
become the largest in the world now. India still has
demographics so that it will continue to grow and add
population in the subsequent decades. Indians are young. The average age is under
30. So really a vibrant, young,
educated workforce. I won't be surprised in the
next decade India will be the workshop of the world. Population is only going to
be one dimension of this. We have to think about
infrastructure, about gender roles, gender equality,
about the nature of the economy. And in that sense,
of course, there are still fundamental differences
between China and India. And I think in many ways,
India still has a lot of ground to gain. Just because you have plenty
of young workers doesn't mean you have the roads or
the factories or the financing or the logistics
to take advantage of all those things and really
make it come together. So yeah, there's not that
expectation at all. This population decline in
this process of aging is almost irreversible. We can try to slow it down
a little bit through increasing fertility rates,
but that's not really the solution to anything
because of course babies don't work, babies don't
pay tax. And so we need to do is
tackle some of the challenges of today. And that will require
things like reforming the pension system, making sure
that their health and social welfare systems are more
adequate, but then also ensuring that China can do
more with a smaller population, involve
increasing productivity, maybe reforming the
education system and so on. Suppose if the labor supply
reaches a critically low point, the Chinese
government might consider importing cheaper labor
from other countries to lower the cost of
production and to maintain its comparative advantage
of its domestic products. And this will bring about
even more benefits to other countries with cheaper
labor. Foreign companies, foreign
governments are aware that things are going in one
direction in China at the moment. A lot of companies are going
to rethink their whole business model, whether
they would place any manufacturing or resourcing
outside of China, whether they would be looking at
other sources of consumption growth. The damage has been done. Nothing you can do about
it. You just have to minimize
the damage in the future.
