A long-feared demographic collapse is now striking China’s economy and markets directly. Rod D. Martin, founder and chief executive of the top U.S. investment firm Martin Capital, has claimed that the world’s second-largest economy has crossed a dangerous point from which there is no return. In his view, China’s population crisis is now “mathematically irreversible” and will, in time, crush the country’s economic growth, consumer market and ambition to become a superpower on the world stage.
Chinese government data show that, after reaching a peak of about 1.4 billion people, the country’s population has already begun to shrink. Deaths now outnumber births every year. The pace of the decline in birth rates in recent years has been dramatic. As recently as the mid-2010s, about 18 million children were born in China each year. But in recent years that figure has fallen to below 10 million. It is the lowest birth rate in the history of the People’s Republic of China.
Analysts fear the pace of population decline will accelerate further. According to the latest figures from the UN’s World Population Prospects, even on standard assumptions, China’s population could fall to about half its current size by 2100.
Martin does not see this as a temporary problem. In his view, it is a permanent structural break. At the root of Martin’s mathematical argument is the “one-child policy” that Beijing rigidly imposed from 1980 to 2016. Demographers have long warned that the policy drove down the fertility rate. It shrank the younger generation and, through sex-selective abortion, created a vast imbalance in the ratio of women to men. Because of an excessive preference for sons, millions of daughters were never born. That artificial imbalance is now striking directly at China’s labor market, marriage and the formation of new families.
On social media, Martin wrote that those of childbearing age today are themselves the shrunken generation born during the “one-child policy.” Each generation multiplies the shortfall of the one before it. You cannot offer subsidies or incentives to women who were never born.
Reports from various research institutions now place China on the list of “ultra-low fertility” countries in East Asia. According to forecasts by the Pew Research Center and the UN, China’s population could fall to just 630 million by 2100. And according to highly pessimistic analysts like Martin, China’s population will settle at just 300 million by the end of this century — about three-quarters below its peak.
A major worry for investors is that this population decline will swallow China’s growth and domestic market. China built its cheap-production and infrastructure boom on a once-young, working-age population and a low dependent population. That golden era, or “demographic dividend,” is now over.
The number of working-age people in China, aged 15 to 64, has already passed its peak and is now steadily falling. By contrast, the number of retired people aged 65 and above is rising fast. World Bank data show that the ratio of dependent people to working people in China is on the rise.
Martin summed up the aggregate economic effect this way: “A shrinking workforce, a collapsing number of taxpayers, the burden of retirees and a hollowed-out consumer market. This is not just a demographic crisis; it is in fact the death of China’s dream of becoming a superpower.”
Seeing the situation deteriorate, Beijing has in recent years lifted all its birth-control restrictions, is encouraging larger families and is offering parents various kinds of support. Xi Jinping’s government has taken steps such as cash bonuses for couples, housing and education subsidies, longer maternity leave and even scrapping tax breaks on contraceptives.
But all this state messaging has failed to move young people. Surveys of urban youth in China point to high housing costs, intense competition in education, long working hours and a lack of day-care, making them afraid to marry and have children. So it is no longer a policy barrier; rather, this reluctance is now embedded in China’s current economic and social structure, making it nearly impossible to solve easily.
This demographic shift in China will also bring major upheaval to the global economy. First, the limits of growth. A shrinking workforce will cap China’s GDP growth at a certain level, and international institutions have already cut their long-term forecasts for Chinese growth.
Second, a slump in the consumer market. As new family formation and birth rates fall, housing, education and the general consumer market will take a heavy hit.
Third, supply-chain relocation. Because of labor shortages and rising wages, the world’s big companies are moving their production out of China to countries with young populations such as India, Vietnam, Mexico and those in Africa.
Fourth, geopolitics. It will become harder for China to compete with the United States in the military and technology sectors. For a country that is aging and under economic strain, it will become impossible to sustain a huge defense budget and the technology investment needed to close the gap with America. In Rod Martin’s words: “Demography is destiny.”
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