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China’s one-child policy has given trump card to US in trade war
In 2017 Japan saw the fewest baby births since statistics compilation began in 1899
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n 2017 Japan saw the fewest baby births since statistics compilation began in 1899. Only 941,000 children were born in 2017 — one sixth the children born in Indonesia. The demographic challenge that has been facing Asia’s ageing economy for at least a decade has kept its economy in the dumps. To be fair, population growth has declined sharply across the world on the back of increased urbanization and greater awareness of contraception.
In 1990, the birth rate across the world per woman was 3.95 which fell to 2.72 by 2016. The globally accepted benchmark of 2.1 children per woman is needed to replace a population. Sub-Saharan Africa is driving population with a birth rate of 4.85 while nations like Indonesia and India are keeping population stable with birth rates of 2.3 according to data from World Bank. China’s birth rate has remained at 1.5 since 1995.
It is this factor United States President Donald Trump is counting on as part of his trade negotiations with China. China is the world’s most populous nation today but has made strenuous efforts in curbing population growth through its draconian one-child policy that existed between 1979 and 2015. That policy has worked in curbing population in many provinces but had unintended consequences for China.
In a presentation that Edward Yardeni of Yardeni Research gave to Trump’s economic advisers last month, he says “China’s one-child policy has created a demographic nightmare for the country and that China is seeking to become a super-power before it turns into the world’s largest nursing home.”
There is a double whammy on play in China. A depressed birth rate over a 36 year period has led to fewer young people.
On the other hand the ability of mankind to contain and eradicate deadly diseases has boosted life expectancy in China and across the world. The last major calamity in terms of infection or virus occurred during the 1918 influenza pandemic which resulted in the death of 50 million people and led to life expectancy levels for men to fall to merely 36.6 years of age. Since then, life expectancy levels have been rising and show no sign of stopping.
Yardeni’s warning is ominous and there is sufficient data to support it. The median age in China today is 37 — in comparison median age in nations like India and Indonesia is around 27.
China must [...] become more modest in its aggression.
The number of elderly people is expected to rise from 194 million in 2012 to 300 million by 2025. That implies a heavy burden on the young working class to satisfy the demands of a larger ageing population.
Analysts say that for every locally paid pensioner there must be three working people in China.
The demographic data for China is similar to many nations in Europe — with one critical difference. Unlike the elderly in Europe who have guaranteed benefits in terms of pensions and public health care, no such luxury exists for the Chinese.
According to China Daily by the end of 2017, about 513 million rural residents and unemployed urban dwellers were covered by the basic pension scheme with a monthly average payment per person of a paltry US$18.
Given the inadequate pension and thereby the burden on China’s youth as well as savings of the elderly to handle their retirement expenses, spending on discretionary expenses will start dropping soon. With China heavily dependent on overseas markets for its manufactured products it may be tempted to close a deal with the Trump administration as well as other large importing nations.
The government’s population control measure may be impacting consumer spending (inflation-adjusted retail sales, car sales) and Trump’s war may hit harder and faster than expected.
There are no easy solutions to this structural crisis for China. Foreign immigration is a step employed by many parts of the western world to keep population stable. But given the lack of freedom and rigorous work ethic prevalent in China, it is unlikely many outsiders will be in jubilation to mark their entry into the mainland. Moreover, if the US tactic to retrieve major manufacturing jobs back from China does work — then old-economy jobs will become scarce.
Even if there is interest among immigrants to enter China, the preference for the Chinese state must be towards females. The one-child policy in an environment where there is preference for a male child has brought about a skewed gender ratio.
Government figures may not be entirely accurate due to leakages in the old-child policy implementation; but estimates suggest that there are over 30 million males than females in China — a figure equal to the population of Malaysia and Venezuela and higher than the population of Australia.
The low-hanging fruit is to hike the retirement age in China. That is being considered strongly given the prevailing retirement age of 60 for men and 55 for women. The longer-term solution is to boost population by having more babies — a move already initiated after China scrapped the one-child policy in 2015 but which will be challenging as growing urbanization creates a preference for delayed marriages and lesser children.
Trump’s economic advisers appear aware of this impending domestic consumption crisis in China and with Trump displaying no inhibitions in using it effectively as a negotiation tactic it is likely that future administrations will also view it as a useful tool to strike a hard bargain with China at regular intervals.
On its part China must not surrender meekly but become more modest in its aggression. It must continue with its ambitious Belt and Road Initiative without much fuss. Unlike most other nations China has been reputed to always keep its eye on the long-term. They must hand an acceptable victory to Trump in this trade war for surviving as a powerhouse in this century.
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The writer is vice president, business strategy at Cogencis Information Services, Ltd.
