China’s economy is slowing.
Among the many problems the country faces is unfavorable demographics.
Specifically, its working age population has been peaking, and it’s projected to decline.
“That demographics will cease to be a positive for China’s economic growth and start to have a negative impact is an issue of great concern to local analysts and economists and has sparked fears the nation will grow old before it grows rich,” said Nomura Economist Richard Koo in a new note to clients.
Indeed, adding to financial strains is the ever increasing ageing population, which puts pressure on the so-called dependency ratio. The dependency ratio generally relates the number of people in the labour force to those who are too young or too old to work.
The economists at Morgan Stanley note that demographic trends as measured by the dependency ratio have played a major role in the booms and busts of the big Asian economies:
Positive demographic cycles have been one of the key components in the strong growth trends for a number of Asian countries. The decline in the ratio of the non-working (elderly and children) to working-age (15-64 years) population has coincided with periods of economic boom for various countries in Asia in the past 50 years. Throughout the region, there has been a virtuous cycle of falling age dependencies (a rising share of the working age population), improving saving (and investment) to GDP and long phases of strong GDP growth. Japan was the first in Asia to experience a positive demographic wave, followed by the former Tiger economies (i.e., Hong Kong, Singapore, Taiwan and Korea) – and then China. Note, demographics is a critical component but not necessarily a sufficient factor. The progress of various countries with favourable demographics in terms of per capita income levels has indeed been different depending on the nation’s ability to improve productivity.
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