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Just three years ago, economists had predicted China would overtake the US economy by the end of the decade. Now, that looks unlikely. But it will not be the current real estate crisis that stands in the way. A record-low birth rate is the country’s biggest obstacle.
China’s fertility rate is estimated to have touched a record low of 1.09 last year. Births were below 10mn for the first time. This year, expect a third straight year of decline with births a tenth lower to well below 9mn.
It is a vicious cycle. An economic slowdown should mean young couples delay having children. The resulting decline in fertility rates eventually pushes the economy’s productivity rates lower.
On current estimates the population rank in the world will fall precipitously. In 1990, China had over a fifth of the world’s people according to UN data. But sometime in 2050s that proportion will have fallen to just over half that proportion, less than that of high income nations. By the end of the century 40 per cent of the populace will be over the age of 65.
The reversal of Beijing’s decades-old “one child” policy has had little effect. In fact, since that was scrapped in 2016 births have declined 50 per cent. Other official incentives and policies, including cash bonuses for births and discouraging divorces by implementing a 30-day “cooling-off period”, have not helped.
The immediate impact will be felt by companies in related sectors such as baby formula and dairy products. Manufacturers in Japan and South Korea, where birth rates have already dipped below one child per woman, have battled slim profit margins. Companies such as Maeil Dairies and Megmilk Snow Brand rely on exports to China for growth, as do Australian makers.
A longer-term economic impact comes from a shrinking labour force. China already has worker shortages in manufacturing. Younger workers, aged 16 to 24, shun factory jobs. Beijing expects a shortage of nearly 30mn manufacturing workers by 2025. The resulting rise in labour costs will weigh on both local and international companies with factories in China. Labour cost rises there have already outpaced those in Thailand and Vietnam.
Demographic pressures have long been an issue in Asia. But China’s share of global manufacturing means its low birth rate will affect international companies as well.
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