The end of China’s growth story


Article by Jan Longeval – Senior Advisor at Eurinvest Partners. Trends, Business Column, 13th of October 2022 (updated on 25th of October 2022)

Official Chinese statistics showing a decline in population for the first time since 1961 – the end of the Great Famine – have received very little media coverage. Between 1961 and 2021, China’s population rose from 660 million to 1.4 billion. Indeed, labour force growth is one of the reasons behind China’s extraordinary economic growth during this period. The other factor is the massive migration from the countryside to the cities where a Chinese worker’s productivity is four times higher. Economic growth reflects labour force growth (not total population growth) and productivity growth. An economy grows when more people are put to work, and even more when their productivity increases. In the future, China will be chronically short of both these factors.

In 1971, China’s fertility rate (the number of births per woman) was 5.8, a worryingly high level then given the size of its population at that time. The Chinese government put policies in place to curb its population growth. In 1980, the infamous one-child policy was imposed and enforced with the well-known zeal of the Chinese state apparatus. It was a success: The fertility rate collapsed to 1.15 – lower than in Japan (1.3) and half of what is needed to stabilize a population. Caught off guard, China attempted a U-turn in 2016 by replacing the one-child policy with the two-child policy. In a desperate attempt, China was forced to introduce the three-child policy in May 2021 before finally lifting all limitations.

Because of its structurally low fertility rate, the United Nations, in its July report, estimates that China’s population will fall to 800 million by 2100 and that its working age population will decline by two-thirds (!). And the UN forecast is still too optimistic, as it eventually assumes a recovery of the fertility rate to 1.6. The Shanghai Academy of Social Sciences, which is controlled by the Chinese government, assumes that the fertility rate will not bounce but stabilize at its lows, and predicts that the Chinese population will fall to 587 million by 2100, a drop of almost 60%. This is what you get in the long run with an extremely low fertility rate: demographic suicide.

China is notorious for constantly manipulating official statistics to feed the flow of good news. However, when a Chinese government agency reports that something is wrong, things are often much worse. Yi Fuxian, author of Big Country with an Empty Nest, has discovered that China’s population has been falling for years. It would currently stand not at 1.4 billion but only at 1.28 billion. And the “missing” people are all [future] of working age.

Accounting for this reality, China’s working population is set to shrink by three quarters. And productivity gains would not make up for this loss. While the rural exodus is not yet complete, the trend is dying down, with more than 900 million Chinese already living in the cities. Demographic suicide is economic suicide. On this basis alone, not even taking into account the humongous real estate bubble that is on the verge of collapsing too and the retour en force of old-school communism with Xi’s rise to absolute power, the mathematical conclusion is that the Chinese growth story is definitely over, leaving our current forecasts of global economic growth grossly overestimated.