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China Faces End Of "Migrant Miracle" As Demographic Ceiling Imperils Economy
Exactly four years ago we began to discuss the idea that China is fast approaching its so-called “Lewis Turning Point,” which is defined simply as the moment in time when surplus rural labor is fully absorbed into the urbanizing economy leading to rising wages and falling productivity. At the time, SocGen suggested that “China [was] still some time away from reaching the type of urbanisation rates that characterised Lewis turning points in Japan and South Korea during their most rapid periods of industrialisation and wage growth.”
We revisited the issue in 2013, and began to discuss the idea that although urbanization had indeed contributed to productivity gains, the country faced offsetting demographic headwinds in the form of a shrinking working-age population. Additionally, we pointed to research from SocGen which suggested that from 2015 forward, the labor force in China is expected to contract.
Here we are in 2015 and sure enough, demographics in China are once again set to become a talking point, as the two trends mentioned above (urbanization and a decline in the working age population) play out against — and feed into — slumping economic growth. Here’s FT with more:
China’s labour force is shrinking and the “migrant miracle” that powered its industrial rise is mostly exhausted, removing the factors that propelled the country’s meteoric development, according to leading economists.
The transformation will lead to slower growth, reduced investment and a loss of export competitiveness, they warn, increasing the urgency of implementing ambitious economic reforms aimed at finding new sources of expansion.
“Now we are at the so-called Lewis inflection point. I made this forecast in 2006, and today there is no need to change it,” said Ha Jiming, chief investment strategist for private wealth management at Goldman Sachs in Hong Kong...
“The working-age share of China’s population peaks this year at 72 per cent, then it will start to fall rapidly, even more rapidly than what we saw in Japan in the 1990s,” he added.
Cai Fang, vice-president of the Chinese Academy of Social Sciences, a think-tank that advises the government, estimates that China’s potential gross domestic product growth decreased from 9.8 per cent in 1995-2009 to 7.2 per cent in 2011-15 and 6.1 per cent from 2016-20.
A shrinking labour force is one of the main drivers. Since Deng Xiaoping launched market reforms in 1978, 278m migrant workers from rural villages have moved to work in the cities.
But reallocating labour from farm to factory — resulting in higher overall growth as workers’ productivity soars — is now mostly complete.
“From 2005 to 2010, the growth rate of migrant workers was 4 per cent. Last year it was only 1.3 per cent. Maybe this year it will contract,” said Mr Cai.
For China’s economy — which, you’re reminded, may be growing far less rapidly than the official numbers suggest even as the official figures represent the slowest growth rate in six years — the above has serious ramifications. First it stands to reason that as the supply of new low wage workers shrinks, wages will rise, an eventuality which forces producers to pass higher costs on to customers thus undercutting export competitiveness at a time when exports are already under pressure from slumping global demand and the yuan’s link to the dollar.
This dynamic is exacerbated by a projected decline in the overall number of working-age citizens. Here’s FT again:
The dwindling flow of migrants is one aspect of China’s shrinking labour force. But the slowdown in urbanisation is coinciding with a rapid ageing of the population, another key shift underlying the Lewis Turning Point.
China’s one-child policy created a “demographic dividend” for the economy between roughly 1980 and 2014. Now that dividend is turning into a deficit. The population of Chinese aged between 15 and 64 peaked in 2013, Mr Cai notes. The ratio of children and elderly to working-age Chinese — the dependency ratio — began rising in 2011.
The one-child policy was introduced in 1979, but the birth rate kept rising into the 1980s. Annual births in China hit 25m in 1987 and have steadily dropped ever since, hitting about 20m a year by 1997 and falling to 16m last year.
“Starting in two or three years, you’re going to see another substantial, precipitous drop in young labour entering the labour market,” says Wang Feng, an expert on Chinese demographics at the University of California Irvine and Fudan University in Shanghai.
Putting all of this together, China is faced with a new reality wherein the very conditions that have supported the country's rapid economic growth may now be set for a wholesale reversal, as rising wages and a shrinking labor pool transform the industry-based economy (previously characterized by large trade surpluses and widespread inequality) into a service and consumption-based economy characterized by declining export competitiveness and falling rates of savings and investment. FT notes that the acceleration of economic reforms can help to ameliorate what is likely to be a painful transition and as you'll see in the video below, the suggested solutions echo those we highlighted two years ago — namely, the creation of a sustainable social safety net, and the facilitation of labor mobility.
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they pump out slaves like the bernaq printed up money.
IMHO the transition to a consumer economy is a natural consequence of development. And there isn't so much wrong with a domestic consumer economy of 1.4 Billion people?
The only thing missing for China as regards a consumer economy is natural resources which makes the warming relations between China and Russia (with plenty of NR) a problem for the West.
domest steel iron copper are all at near expotential records already it's a big reason why commodities are done well far bigger is just crushed demand but domestic supply is one too
Kids raised in rural communities were raised with morals and strong work ethics. They understand that you work to eat.
Kids raised in the city were raised to believe that wheeling and dealing is the way to get ahead. Cities are terrible places to raise kids.
what in the world are you talking about?
what does that have to do with domestic metals supply?
The basis is wrong.
The above hypothesis works when you are talking about a work-force that is fully trained/educated and then getting phased out by tech or demand changes or offshoring. Liek is happening in the west.
Most of the "migrant" labour these past two decades has just been taught to be a machine in a Foxconn. There is a lot more such a labour force can be transformed into before calling it a limit situation.
Music...
https://www.youtube.com/watch?v=gYBO6cJUsFA
my basis is fine ... migrant tech workers have nothing to do with metals
I was actually calling out the basis of the author's piece, if you get muh dreeft....
Turns out that their customers do not like lead in their products. It took about 10 years but the sheep are finally speaking with their money. Look to MCD for a relevant reference of sheep awakening.
So they are only a generation away from righting the ship unlike Japan which wasted a generation and now has the lowest child population since records began in 1950, continuing a trend in declining birthrates which began in 1971.
I would add that Japan could benefit from a lower population in the long term but it is not a politically popular position to take.
Don't forget to toss in the high rentier cost of real estate which is hitting the street level economy and the equalization of the yuan vis a vis other global currencies.
and now they (Gates, etc.) are saying yuan will strengthen ahead of IMF meeting re: SDR.
What would that do to the declining export, and domestic property ponzi ?
Fucking Eugenic morons, having a one child only policy for 3.5 decades will do that to your demographics. Read em and weep
While I am not for government dictates on such things, a country with few resources can only support so may people. While important, the effects of population on labor supply does not have the same priority on many Asian nations as it does in the West. Unlike the US and Europe, China and Japan will resist mass immigration strictly to supply labor because of the culture and bloodlines and because they see the ill effects of such immigration in the US and Europe.
China will likely overcome this problem much better than the West will overcome multiculturalism.
And I'm not a big fan of multiculturalism, but I do see a lot of powerful synergy in people using what has worked for them around the world all in tandem and in one place. I like Chinese culture, but I don't see a very positive end for the 70 year Communist run which has inflicted untold damage on China in many ways. Reminicent of the end of the Sui Dynasty.
Don't worry, China will continue. The PRC Dynasty will be replaced; it's in the process now.
China will soon show the effects of its educational and economic reforms. China is learning from its mistakes.
America will be the one left with the dregs of its "Affirmative Action" policy and "political correctness."
In some ways you can compare the PRC Dynasty with the Sui Dynasty.
The Sui Dynasty was a very terrible period in Chinese history.
But how can you be so blind not to recognized that the Sui was followed by the Tang Dynasty -
the period of China's greatness.
China is scheduled for a neo-Tang Dynasty after the PRC.
Learn Chinese.
You go up...then...you go down. Easy peazy.
Moar shy knees row boughts.
Xinhua asks: Everyone's heart has a Hamlet, how to view the stock market?
won't matter, robot revolution on the horizon ---- prepare the depopulation
I thought chinese working age was 5 yrs until you die. I think it is a mistake to project western models onto eastern economies.The silting of the Three Gorges dams and downstream problems (especially Shanghai sinking)are the biggest threat I can see to China in the near term.
This is nothing new. China has prepared, though not necessarily ready, for it for a few years now.
This is all good. All those Chinese kids going to college will take the country to the next level. And no more outsourcing to cheap Chinese labor any more.
Now India has to go through a similar transition.
China will be fine. If China needs babies, they will make them.
Right now, China's robot factories are making "baby" robots.
China to have most robots in world by 2017
https://www.yahoo.com/tech/s/china-most-robots-world-2017-130939948--bus...
China’s factories are building a robot nation
http://www.marketwatch.com/story/chinas-factories-are-building-a-robot-n...
Americans are so stupid, they are losing their country with "leaders" like Obama and Clinton(?),
China will eat America's lunch.
we have several million illegal migrants we could send them.