Ever since the late 70s, China has been known as a low-cost, high-growth phenomenon. Its economic transformation began 30 years ago, as it emerged as a low-cost manufacturing center. More recently, companies such as Internet equipment maker Huawei have been competing with multinationals at higher levels, as China looks to develop the intellectual capital of a developed nation.
And with the economy growing at 9 percent, even in the aftermath of the financial crisis, a middle class and consumer culture is taking shape. While China has not crossed the threshold from emerging to developed economy, it is getting there very fast.
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Chinas $6 trillion economy is not without its challenges, though. Over the last year, it has grappled with higher inflation and what many experts believe is a real estate bubble in some markets. And despite the relative prosperity of many urban regions, the country as a whole still has a low per-capita income. The most fundamental and important hurdle may be demographic, though.
Thanks to a slowing birthrate, mandated decades ago, by Chinas one-child-per-family policy, Chinas population is rapidly aging. While other countries, notably Japan, are struggling with whether they will have enough workers to support the older generations, the problem is magnified by Chinas population of 1.3 billion, the largest in the world. And since China is a key source of demand for countless markets and industries around the world, its ability to solve the problem in satisfactory way is key to global growth.
Population growth in China over the last decade dropped to 0.57 annually, and the fertility rate of 1.5 percent is among the lowest rates in the world, and well below the replacement rate of 2.1 percent, the Washington Post said, citing data from the Brookings Tsinghua Center for Public Policy in Beijing. Over the same period, the number of people under 14 has fallen by one third while the number of people over 60 has increased by 20 percent, creating a scenario in which Chinas population is expected to peak at 1.45 billion in 2029, Brookings said.
While Chinas economy is still on track to become the largest in the world, other emerging markets might pace global growth. India and Indonesia have younger populations and are expected to grow much faster.
Over the next 20 years, Indias working age population is expected to increase by 200 million; Chinas is expected to grow by 4 million during that same period, and decline by 51 million during the following decade, according to Gerard Lyons, chief economist and head of research at Standard Chartered Bank.
And then theres Indonesia, where the average age is 28. Walking around Jakarta is almost shocking in comparison to Japan. Adolescents and young adults are simply everywhere. They jam the malls and restaurants, hang out in the public squares, and fill the buses. One strains to see grey hair, and usually succeeds only when a large family group is present, says blogger Michael Auslin, of the American Enterprise Institute. It is a type of society Japan can but dimly remember, and one which even China will soon begin to forget.
And when what?
An aging population may add to Chinas already considerable inflationary pressures, some experts fear. Businesses already are competing for labor, and wages rose 20 percent in China last year. "It will become harder for productivity to keep up with faster wage growth, while the consumption share of GDP should soon start to rise, reducing economic overcapacity. All this points to higher structural inflation pressure," Nomura analyst Sun Chi said in a report cited by China Daily.
As Chinas surplus of cheap labor disappears, it may start to focus more on the less labor intensive IT and service businesses, competing more directly with counterparts in the U.S.
As the population peaks, so will Chinas demand for raw materials, which has helped push the price of commodities ever higher. The peak in demand will have an impact on many industries. Chinas government claims it has so far averted 400 million births due to the (one-child) policy but that could represents a good amount of potential demand for all types of commodities, not to mention metals used in construction and automotive applications among others, according to Metal Miner magazine.