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China's demographic crisis.

A shrinking population and growing dependency ratio could halt Beijing's ascendanc.

Nobel Prize-winning economist Joseph Stiglitz declared almost a decade ago that 2014 “was the last year in which the United States could claim to be the world’s largest economic power.”


It was, he claimed, the start of the “Chinese century”.


He was wrong: the US remains the world’s largest economy. Yet experts keep predicting that China will soon become the preeminent global superpower, now believing that China’s GDP will overtake America in the late 2030s.


This weekend, outgoing premier Li Keqiang is expected to reveal a new 5pc growth target at the National People’s Congress as Beijing seeks to get the country’s roaring economy back on track after Covid disruption.


Yet the “Chinese century” could soon have a double meaning – encapsulating not just the country’s stratospheric rise, but also its economic implosion.


A dramatically ageing population, the largest property crash in its history, the burden of zero Covid blunders and escalating geopolitical tensions mean China faces a growing crisis.



“China’s population is expected to peak at 1.4bn in 2024/25 and then it will almost halve by the end of the century,” says Pushpin Singh, of the Centre for Economics and Business Research. “That is a massive shift.”


As China’s population ages, its workforce will come under huge strain as a decreasing proportion of working age people are required to support a growing elderly population. A larger share of government spending will also be diverted to health and social care.


For every 100 working age adults in China in 2010, there were 37 people aged either under 15 or over 64.


Today, that “dependency ratio” has swelled to 45, according to Oxford Economics. By 2050, it will be 71.


Advanced economies around the world have the same problem with ageing populations. However, the issue has been exacerbated by China’s one child policy, says Louise Loo, of Oxford Economics, which compelled couples to have only one child between 1980 and 2016.


Births have languished even after the policy was scrapped, falling to a record low of 6.77 births per 1,000 people last year.


Steve Tsang, director of the China Institute at SOAS, says: “It is easier to limit growth in population by repressive means. It is much more difficult to get people to have more children by the order of the Government.”


Officials last month urged regional chiefs to come up with “bold innovations” to boost the fertility rate, reflecting the growing panic about this demographic time bomb.



China also faces permanent scarring from Covid. Beijing's zero Covid policy, which dragged on for far longer than the rest of the world, cost it 4.7pc of GDP, says Loo.


“Some of that is permanently lost,” she adds.


The economy has rebounded more quickly than expected since the reopening but the boom years enjoyed are long done.


Chinese GDP grew by 6pc in 2019 before the pandemic. In 2022, this had slumped to just 3pc.


Oxford Economics has forecast growth of 4.5pc this year and believes it will drop to 3pc after 2030.


“The Chinese government is trying to pivot to a consumer led, rather than investment led, economy. To do that, they need consumers to spend. It is harder to do that if they are supporting elderly relatives,” says Loo.


Tsang says: “The even bigger challenge is the reality that Xi [Jinping] does not want to acknowledge this, so it is difficult for the Chinese Government to confront and prepare for the shift.”


This will be a critical, but slow burning, problem for China, he says.


Beijing is ignoring the issue in part because of a more pressing crisis: the country’s spiralling property market.


Since the collapse of Evergrande, the country’s second largest property developer, at the end of 2021, China’s property market has been hit by the biggest downturn since the emergence of the private sector in the 1990s, says Mark Williams, chief Asia economist at Capital Economics.


Sales have slumped by more than a third compared to their peak in spring 2021. House prices have been falling for 16 months.


Values have so far fallen by 3.5pc and are likely to be down 6pc from peak at the worst point, says Loo. The numbers sound small, but they are remarkable considering China's highly interventionist government.


“The fundamental problem in the housing market is that developers have been building more and more houses but now the population has peaked and urbanisation has slowed to a crawl,” says Williams.


Demand for housing between 2025 and 2030 will be half what it was in the five years before the pandemic, says Loo.


“That is pretty dramatic. The property sector was the key engine of growth in China. It won’t be going forwards,” she says.


A fifth of China’s economy is tied to the property and construction industry, says Williams.


“As that goes away, the difficulty is how to find a different growth driver, because the property boom is over.”


“A lot of developers won’t exist in five years’ time. They will go bankrupt or they will be bought up. There will be a huge wave of consolidation.”


60pc of household wealth is in property and the housing downturn therefore has massive repercussions for wealth and spending.



Falling house prices are not only a risk to citizens. Local governments have huge amounts of borrowed money tied up in land. The debt across all of China’s local government financing vehicles (LGFVs)  has doubled in five years to RMB 50 trillion, says Loo – or £6.05 trillion.


“They have contingent liabilities that could explode down the road,” says Loo.


There are two other immediate risks: another high profile property developer goes bust; or escalating geopolitical tensions boil over.


A military invasion of Taiwan would bring an enormous shock. Analysts see a growing risk of Beijing invading.


Fears of potential conflict, combined with the disruption to supply China wrought by zero Covid, mean China is losing its attractiveness to international businesses.


“China is no longer the primary investment destination it once was,” according to Colm Rafferty, the chair of The American Chamber of Commerce in the People’s Republic of China.


Writing in its March business climate survey report, Rafferty reported that 45c of his members thought China’s investment environment was deteriorating – the highest share in five years. For the first time, less than half of AmCham China’s members ranked China as a top three investment priority.


AmCham China noted a 10 percentage point jump in the number of companies leaving or planning to relocate their manufacturing and sourcing outside of China.


“A lot of companies are worried about getting caught on the wrong side of sanctions in the future, particularly in the tech sector,” says Williams.


Confronting an ageing population, a slowing economy, a property market implosion and rapidly rising geopolitical risks, many Sino-watchers are rethinking their outlook.


“10 years ago, it seemed inevitable that China would dominate the world’s economy,” says Williams. “That is no longer the case.”


By Melissa Lawford for The Telegraph





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