Mon, Feb 27, 2023 page8

• The Chinese era is already over

  • By Yi Fu-xian 易富賢
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  Last month, China officially acknowledged that its population began to decline last year — about nine years earlier than Chinese demographers and the UN had projected.

  The implications of this are hard to overstate. It means that all of China’s economic, foreign and defense policies are based on faulty demographic data.

  For example, Chinese government economists have predicted that by 2049, China’s per capita GDP could reach half or even three-quarters of that of the US, while its overall GDP could grow to twice or even three times that of its rival.

  However, these forecasts assumed that China’s population would be four times that of the US in 2049.

  The real figures tell a very different story. Assuming that China is lucky enough to stabilize its fertility rate at 1.1 children per woman, its population in 2049 would be just 2.9 times that of the US, and all its key indicators of demographic and economic vitality would be much worse.

  The faulty predictions do not affect only China. They imply a geopolitical butterfly effect that could ultimately destroy the existing global order.

  Chinese authorities have been acting in accordance with their longstanding belief in a rising East and declining West.

  Similarly, Russian President Vladimir Putin believed that as long as Russia maintained stable relations with a rising China, the declining West would be powerless to hold him accountable for his aggression against Ukraine.

  In its haste to abandon Afghanistan to focus its resources on China, the US might have unwittingly emboldened Putin further.

  Population aging is likely to have a permanent, major drag on China’s economy. As Italy’s experience shows, the old-age dependency ratio — the number of people older than 64, divided by those aged 15 to 64 — has a strong negative correlation with GDP growth, as does the median age and the proportion of people older than 64.

  In 1950, Japan’s median age was 21, compared with 29 in the US. As one would expect, Japan subsequently benefited from years of faster economic growth.

  However, by 1994, the prime-age labor force — people aged 15 to 59 — began to decline, whereas the US working-age population is not expected to fall until 2048.

  By 1992, Japan’s median age was 5.5 years above that of the US, and its old-age dependency ratio began to exceed that of the US. Not surprisingly, its GDP growth has been lower than the US’ ever since.

  Japan’s per capita GDP rose from 16 percent of the US level in 1960 to 154 percent in 1995.

  However, by last year, that figure had fallen to 46 percent, and it is likely to fall below 35 percent.

  Similarly, owing to their young populations, Taiwan and South Korea achieved rapid economic convergence for more than five decades, with per capita GDP soaring from 5 percent of the US level in 1960 to 42 percent and 53 percent respectively in 2014.

  However, both economies have since stagnated as their workforces have shrunk, putting them on track to fall below 30 percent of US per capita GDP.

  In China’s case, the median age in 1980 was 21, eight years younger than the US’, and from 1979 to 2011, its GDP grew at an average annual rate of 10 percent.

  However, China’s prime-age labor force — people aged 15 to 59 — began to shrink in 2012, and by 2015, GDP growth had decelerated to 7 percent before slowing to 3 percent last year.

  An average of 23.4 million births per year from 1962 to 1990 made China “the world’s factory.”

  However, even China’s own exaggerated official figures put last year’s births at just 9.56 million. Chinese manufacturing could continue to decline as a result, creating new inflationary pressures in the US and elsewhere.

  While China’s population was 1.5 times larger than India’s in 1975, even the Chinese government’s exaggerated official figures show that it was smaller last year — 1.411 billion compared with 1.417 billion.

  In reality, India’s population surpassed China’s a decade ago, and it remains on track to be about 1.5 times larger than China’s in 2050, with a median age of 39 — a full generation younger than China’s, at 57.

  By 2030, China’s median age would already be 5.5 years higher than that of the US, and by 2033, its old-age dependency ratio would begin to exceed the US’.

  Its GDP growth rate would begin to fall below the US’ from 2031 to 2035, at which point its per capita GDP would hardly have reached 30 percent of its rival’s — let alone the 50 percent to 75 percent predicted by Chinese official economists.

  If the US is overtaken as the world’s largest economy, it would be by India, not China.

  China is investing heavily in artificial intelligence and robotics to offset the economic drag of aging.

  However, these efforts can go only so far, because continuing innovation relies on young minds.

  Moreover, robot workers do not consume, and consumption is the major driver of any economy.

  China’s decline is likely to be gradual. It could remain the world’s second or third-largest economy for decades.

  However, the huge gap between its waning demographic and economic strength and its expanding political ambitions could make it vulnerable to strategic misjudgements.

  Memories of past glory or fear of lost status could lead it down the same dangerous path that Russia has taken in Ukraine.

  China’s leaders should heed the lessons of Russia’s botched invasion and wake up from their unrealistic “Chinese Dream” of national rejuvenation.

  The Chinese government’s policy approach is a formula for demographic and civilizational collapse.

  The US also has lessons to learn, given its apparent failure to manage a declining Russia.

  The US and its allies — including Australia, Canada, the EU, Japan, New Zealand, South Korea and the UK – would also be dealing with societal aging and resulting economic slowdowns.

  Their combined share of the global economy already fell from 77 percent in 2002 to 56 percent in 2021, and that trend is likely to continue.

  The geopolitical implications should be obvious. If the major powers are wise, they will cooperate in good faith to forge an enduring global order before they no longer have the power to do so.

  Yi Fuxian is a senior scientist in obstetrics and gynecology at the University of Wisconsin-Madison.

  Copyright: Project Syndicate
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