China's Growth Story... Don't Look For A Happy Ending!

Authored by Chris Hamilton via Econimica blog,

Many economists suggest China is on the cusp of significant growth in domestic consumer demand. 

That this rising domestic demand coupled with continued growth as the global exporter will push the global economy further.  However, I'll briefly show why neither of these outcomes is remotely likely.

Problem #1- China as Consumer:

According to the UN data, China's 15-40yr/old childbearing population peaked in 2005 and has been rapidly shrinking since.  Since '05, China's population capable of producing more Chinese has fallen by 83 million persons or a 14.3% decline.  By 2030, China's childbearing population will have declined by 157 million or a 27% reduction of those capable of childbirth (no estimate here...this is simply moving the existing population forward in adulthood).  Couple a massive decline in the childbearing population and the ongoing negative birthrate and serious depopulation (particularly among the rural regions) is not only possible but growing more likely.  Minor increases in wages will be no match for the massive declines in the consumer base.

The chart below shows China's total 15 to 40 year old population (in blue) and the annual change (in red).

As for China's 40 to 65 year old population, peak annual growth is well in the rear view mirror but one final bump in population growth remains before depopulation ensues.  However, the mild acceleration in growth will be more than offset by the declining 15 to 40yr/olds.  Simply put, China has seen peak domestic consuming population and peak demand.  The imminent outright declines are only being delayed by massive central monetization.

Problem #2- China as Exporter:

Who will China continue to export to?  The primary importers of China's goods are N. America (US/Canada), Europe (including Russia and Eastern Europe), Australia/New Zealand.  These nations represent roughly one seventh of the world's population but consume over half of all the worlds oil production.  But here again I have the same problem; combined childbearing population peaked in 1988 and has been declining since.  The population capable of childbirth has fallen over 40 million or nearly 10% since the '88 peak.  By 2030, despite many of these nations allowing, promoting, and/or enduring large immigrations of precisely this age of migrants, the population is anticipated to be 60 million fewer than during the peak, or a 15% fall from peak.  The basis of present and future demand growth simply is non-existent.

As for the US, the chart below shows the anticipated US change to the childbearing population.  However, as I detailed HERE, actual US childbearing population declined in 2017 apparently due to net outmigration of illegal aliens.  Obviously, if this trend continues, then the US has likewise seen peak childbearing population coupled with negative birth rates leading to potential significant US depopulation.

As for the change in the combined 40 to 65 year old N. American/ European / Japanese / Australian / NZ population that has the highest income and spends well in excess of any other population segment...they hit peak population in 2016 and are now declining.  Although the chart below is only through 2030, the decline really picks up speed from 2030 through 2050.

What about India and South Asia as a replacement for the shrinking consumer base of developed nations above?  As the chart below shows, the growth of the combined childbearing population of South Asia (India, Pakistan, Afghanistan, Iran, Bangladesh, Sri Lanka, Nepal) is rapidly decelerating.  Annual growth peaked in 2000 and has decelerated to 8 million as of 2018.  By 2030, growth among these nations childbearing population will essentially cease.  Minimal disposable income coupled with the decelerating growth in the potential consumer base...not what China is looking for.

Perhaps a glance South of the US border is worthwhile.  However, the same dynamics of a fast decelerating annual growth and turn to outright depopulation by 2030 is visible for the combined South American, Central American, and Caribbean region.

Finally, the only region with accelerating childbearing growth is Africa.  Unfortunately for China, Africa has hardly any money, little savings, and relatively paltry access to credit (Africa's situation detailed HERE).  Regardless the incredible population growth, Africa is not and will not likely ever be a significant importer of Chinese goods.

Depopulation means a declining consumer base domestically in China and globally among those capable of importing Chinese goods.  Without China's "growth" (detailed HERE), the economic deceleration and overcapacity is set to really pick up speed.  But don't expect asset prices to fall or economic indicators to suggest things are falling apart.  Quite the opposite, the worse the fundamentals get, the higher asset prices are likely to go all around the world.