Source: IHS Markit
China’s population grew by just 0.53 percent annualized over the last decade, down from 0.57 percent in the 2000s and the slowest since the modern census came into existence in the 1950s. Demographics have limited influence on cyclical economic performance – note, for example, that Brazil, with its relatively fast population growth, has been weak in recent years while falling population Portugal was among the stronger economies in the eurozone in the latter stages of the last cycle – but they are a primary determinant of long-run potential growth. The countries that have recorded the strongest population growth over long periods of time have also generally turned in the largest increases in real GDP.
As we have noted in this space on several occasions, China will continue to benefit from several structural tailwinds for some time; it has a sky-high national saving rate, a burgeoning middle class, and its students have consistently turned in world-beating scores on standardized math, science, and reading tests in recent years. Its immense labor force, however, is beginning to decline – down by 40 million over the last decade – and the population at large is likely near a tipping point as well. Immigration remains virtually non-existent. China’s ascendency is unlikely to be clipped soon, but it will have a limited shelf life barring a reversal in the population trend.
As the next few decades play out, the spotlight for growth opportunities is likely to shift to markets such as India, Indonesia, and Nigeria, large economies with young demographics, rapid population growth, substantial development potential, and widespread entrepreneurial zeal. China still checks one of these boxes, but it is maturing in more ways than one. While its stature and influence will continue to grow in the years ahead, it is unlikely to remain quite the growth engine that it has been for much of the last two decades.
What company’s first logo included a quote from William Wordsworth: “Newton…a mind forever voyaging through strange seas of thought”?
What country temporarily pushed its highest marginal tax rate above 100 percent in the 1970s, inspiring the satirical story “Pomperipossa in Monismania”?