The Great Fall of China and the rise of Africa
by Clem Sunter,
2015-10-21 05:34:10.0
CHINA’s one-child policy, instituted in 1978, slowed population growth to 0.47% last year, with the country’s total population now standing at 1.376-billion.
The demographics have had a limited effect on the economy, which has slowed from a growth rate of about 10% per annum a few years ago to 7% today. The latter is a rate that most nations would die for, but for the Chinese it has been a bit of a disappointment.
One reason the economy is doing relatively well is that people of 65 and over represent 9.4% of the population, much lower than America’s 14.5%. But this is about to change. Look at projections of China’s demographics to 2030 and an extraordinary thing happens.
Normally, a graph showing a breakdown of population by age looks like a pyramid, with the base representing the greater numbers of young people (males and females on either side of the vertical axis) and the top, the few people of both genders who make it to more than a century.
In 2030, even with a relaxation of the one-child policy, the shape of the Chinese population transforms into a middle-aged bulge around 50 to 65-year-olds, with fewer numbers in the younger and older groups. A child born in 1977, a year before the policy started, will be 53 in 2030 — the cause of the bulge.
Later in the 2030s, China may join Japan with more people over 50 than under. That is a significant milestone and it assumes China continues its virtual ban on immigrants becoming citizens.
The other result is a skewed gender distribution in favour of men. Currently, for every 100 baby girls born, there are 120 boys, which is shifting the graph of overall population to the male side.
Consequently, should you give credibility to the hypothesis of linking demographics to future economic growth rates, it is almost inevitable China is on a downward path to a steady state economy.
But there is a huge difference between Japan and Europe on one hand and China on the other. The former have reached a ceiling of relative affluence before levelling out, whereas China will never get there in terms of gross domestic product per head. As one American demographer told me: "China will be the first nation to grow old before it gets rich."
Moreover, by 2100, the United Nations projects that the Chinese population will have fallen to just over 1-billion, losing more than the whole of America’s current population in numbers during the remainder of the century.
Recently, there was a sharp reversal in China’s stock market boom, which the authorities stabilised. But one gets the feeling that China’s financial system will continue to be fragile on account of the slowdown in economic growth.
New apartment buildings are unoccupied, projects to increase cement and steel production have resulted in a huge oversupply; and the grey banking system has financed much of the expansion without adequate safeguards. The chickens could come home to roost in a spectacular way.
Another red flag is the devaluation of the yuan, which has caught markets by surprise, but that the Chinese government is allowing to boost exports. A currency war may ensue, leading to the Great Fall of China.
Such a gloomy outlook for the world’s second-largest economy has enormous implications for many industries as there is no other national economy close to China’s size to replace it (excluding the US, which is already in pole position).
Higher economic rates in India, Africa, South America, South Korea and Indonesia can offset a Chinese slowdown to an extent, but we are unlikely to return to the boom conditions of the latter half of the past century. Mining and energy will be particularly affected.
Africa is the exact opposite of the grey flag. It has the youngest population in the world. The median age — the age that equally divides a population into two numerically equal groups, half older, half younger — of most sub-Saharan African countries is about 18 to 20 compared to 27 for India and 30 for Brazil.
Five of the top 10 fastest-growing economies are in Africa. Hence the perception of Africa, which has been called the hopeless continent, has completely changed. Now it is seen as a continent in which you must have a market presence to get away from the flatness of Europe.
I participated in a session with one of the world’s largest cosmetics companies in which one manager said Africa is their top target market for new hair and skin-care products as you can only sell so much anti-wrinkle cream in Europe! As for businesses arising from the grey flag, plenty of opportunities are available, from building retirement villages to selling all those products that make the lives of old people easier.
• This is an edited extract from Flag watching by Clem Sunter, published by Tafelberg
A consequence of China’s one-child policy is that by 2030, there will be fewer old and young people, and far more who are middle-aged. Picture: REUTERS
CHINA’s one-child policy, instituted in 1978, slowed population growth to 0.47% last year, with the country’s total population now standing at 1.376-billion.
The demographics have had a limited effect on the economy, which has slowed from a growth rate of about 10% per annum a few years ago to 7% today. The latter is a rate that most nations would die for, but for the Chinese it has been a bit of a disappointment.
One reason the economy is doing relatively well is that people of 65 and over represent 9.4% of the population, much lower than America’s 14.5%. But this is about to change. Look at projections of China’s demographics to 2030 and an extraordinary thing happens.
Normally, a graph showing a breakdown of population by age looks like a pyramid, with the base representing the greater numbers of young people (males and females on either side of the vertical axis) and the top, the few people of both genders who make it to more than a century.
In 2030, even with a relaxation of the one-child policy, the shape of the Chinese population transforms into a middle-aged bulge around 50 to 65-year-olds, with fewer numbers in the younger and older groups. A child born in 1977, a year before the policy started, will be 53 in 2030 — the cause of the bulge.
Later in the 2030s, China may join Japan with more people over 50 than under. That is a significant milestone and it assumes China continues its virtual ban on immigrants becoming citizens.
The other result is a skewed gender distribution in favour of men. Currently, for every 100 baby girls born, there are 120 boys, which is shifting the graph of overall population to the male side.
Consequently, should you give credibility to the hypothesis of linking demographics to future economic growth rates, it is almost inevitable China is on a downward path to a steady state economy.
But there is a huge difference between Japan and Europe on one hand and China on the other. The former have reached a ceiling of relative affluence before levelling out, whereas China will never get there in terms of gross domestic product per head. As one American demographer told me: "China will be the first nation to grow old before it gets rich."
Moreover, by 2100, the United Nations projects that the Chinese population will have fallen to just over 1-billion, losing more than the whole of America’s current population in numbers during the remainder of the century.
Recently, there was a sharp reversal in China’s stock market boom, which the authorities stabilised. But one gets the feeling that China’s financial system will continue to be fragile on account of the slowdown in economic growth.
New apartment buildings are unoccupied, projects to increase cement and steel production have resulted in a huge oversupply; and the grey banking system has financed much of the expansion without adequate safeguards. The chickens could come home to roost in a spectacular way.
Another red flag is the devaluation of the yuan, which has caught markets by surprise, but that the Chinese government is allowing to boost exports. A currency war may ensue, leading to the Great Fall of China.
Such a gloomy outlook for the world’s second-largest economy has enormous implications for many industries as there is no other national economy close to China’s size to replace it (excluding the US, which is already in pole position).
Higher economic rates in India, Africa, South America, South Korea and Indonesia can offset a Chinese slowdown to an extent, but we are unlikely to return to the boom conditions of the latter half of the past century. Mining and energy will be particularly affected.
Africa is the exact opposite of the grey flag. It has the youngest population in the world. The median age — the age that equally divides a population into two numerically equal groups, half older, half younger — of most sub-Saharan African countries is about 18 to 20 compared to 27 for India and 30 for Brazil.
Five of the top 10 fastest-growing economies are in Africa. Hence the perception of Africa, which has been called the hopeless continent, has completely changed. Now it is seen as a continent in which you must have a market presence to get away from the flatness of Europe.
I participated in a session with one of the world’s largest cosmetics companies in which one manager said Africa is their top target market for new hair and skin-care products as you can only sell so much anti-wrinkle cream in Europe! As for businesses arising from the grey flag, plenty of opportunities are available, from building retirement villages to selling all those products that make the lives of old people easier.
• This is an edited extract from Flag watching by Clem Sunter, published by Tafelberg
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