- The Strategist - https://www.aspistrategist.org.au -

The geopolitical implications of China’s declining population

Posted By on February 23, 2023 @ 12:00



In January, China officially acknowledged that its population began to decline last year—roughly nine years earlier than Chinese demographers and the United Nations had projected. The implications of this are hard to overstate. It means that all of China’s economic, foreign and defence policies are based on faulty demographic data.

For example, Chinese government economists have predicted that by 2049, China’s per capita GDP will have reached half or even three-quarters that of the United States, while its overall GDP will have grown to twice or even three times that of its rival. But these forecasts assumed that China’s population would be four times that of the US in 2049. The real figures tell a very different story. Assuming that China is lucky enough to stabilise its fertility rate at 1.1 children per woman, its population in 2049 will be just 2.9 times that of the US, and all its key indicators of demographic and economic vitality will be much worse.

These faulty predictions don’t affect only China. They imply a geopolitical butterfly effect that could ultimately destroy the existing global order. Chinese authorities have been acting in accordance with their longstanding belief in a rising East and declining West. Similarly, Russian President Vladimir Putin believed that as long as Russia maintained stable relations with a rising China, the declining West would be powerless to hold him accountable for his aggression against Ukraine. And in its haste to abandon Afghanistan in order to focus its resources on China, the US may have unwittingly emboldened Putin further.

Population ageing will be a permanent major drag on China’s economy. After all, as Italy’s experience shows, the old-age dependency ratio (the number of people over 64, divided by those aged 15–64) has a strong negative correlation with GDP growth, as does the median age and the proportion of people over 64.

In 1950, Japan’s median age was 21, compared to 29 in the US. As one would expect, Japan benefited from years of faster economic growth. By 1994, however, the prime-age labour force (15–59) began to decline, whereas the US working-age population is not expected to fall until 2048.

By 1992, Japan’s median age was 5.5 years above that of America’s, and its old-age dependency ratio began to exceed that of the US. Not surprisingly, its GDP growth has been lower than America’s ever since. Japan’s per capita GDP rose from 16% of the US level in 1960 to 154% in 1995. But by 2022, that figure had fallen to 46%, and it’s likely to decline below 35% in the future.

Similarly, owing to their young populations, Taiwan and South Korea achieved rapid economic convergence for more than five decades. Per capita GDP soared from 5% of the US level in 1960 to 42% for Taiwan and 53% for South Korea in 2014. But both economies have since stagnated as their workforces have shrunk, putting them on track to fall below 30% of US per capita GDP.

Now consider China. In 1980, its median age was 21, eight years younger than America’s, and from 1979 to 2011, its GDP grew at an average annual rate of 10%. But China’s prime-age labour force (15–59) began to shrink in 2012, and by 2015, GDP growth had decelerated to 7% before slowing further, to 3%, as of 2022. An average of 23.4 million births per year from 1962 to 1990 made China ‘the world’s factory’.

But even China’s own exaggerated official figures put last year’s births at just 9.56 million. Chinese manufacturing will continue to decline as a result, creating new inflationary pressures in the US and elsewhere.

While China’s population was 1.5 times larger than India’s in 1975, even the Chinese government’s exaggerated official figures show that it was smaller last year (1.411 billion compared to 1.417 billion). In reality, India’s population surpassed China’s a decade ago, and it remains on track to be nearly 1.5 times larger than China’s in 2050, with a median age of 39—a full generation younger than the median age in China (57).

By 2030, China’s median age will already be 5.5 years above that of the US, and by 2033, its old-age dependency ratio will begin to exceed America’s. Its GDP growth rate will begin to fall below America’s in 2031–35, at which point its per capita GDP will hardly have reached 30% of its rival’s—let alone the 50–75% predicted by Chinese official economists. If the US is overtaken as the world’s largest economy, it will be by India, not China.

To be sure, China is investing heavily in artificial intelligence and robotics to offset the economic drag of ageing. But those efforts can go only so far, because continuing innovation relies on young minds. Moreover, robot workers don’t consume, and consumption is the major driver of any economy.

China’s decline will be gradual. It will remain the world’s second- or third-largest economy for decades to come. But the huge gap between its waning demographic and economic strength and its expanding political ambitions may make it highly vulnerable to strategic misjudgements. Memories of past glory or fear of lost status could lead it down the same dangerous path that Russia has taken in Ukraine.

So, China’s leaders should heed the lessons of Russia’s botched invasion and wake up from their unrealistic ‘Chinese dream’ of national rejuvenation. The government’s current policy approach is a formula for demographic and civilisational collapse.

The US also has lessons to learn, given its apparent failure to manage a declining Russia. America and its allies—including Canada, the United Kingdom, Australia, New Zealand, the European Union, Japan and South Korea—will also be dealing with societal ageing and resulting economic slowdowns. Their combined share of the global economy already fell from 77% in 2002 to 56% in 2021, and that trend will continue.

The geopolitical implications should be obvious. If the major powers are wise, they will cooperate in good faith to forge an enduring global order before they no longer have the power to do so.


Article printed from The Strategist: https://www.aspistrategist.org.au

URL to article: https://www.aspistrategist.org.au/the-geopolitical-implications-of-chinas-declining-population/

[1] acknowledged: https://apnews.com/article/taiwan-china-hong-kong-eb24f22b99fc777ec9909f6e0c7e322f

[2] projected: https://population.un.org/wpp/

[3] half or even three-quarters: https://global.chinadaily.com.cn/a/202108/23/WS6122f7b0a310efa1bd66a62c.html

[4] three times: http://m.cyol.com/content/2017-08/11/content_16383584.htm

[5] faster economic growth: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=JP-US

[6] has been lower: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2021&locations=JP-US&start=1994

[7] per capita GDP: https://www.imf.org/en/Publications/WEO/weo-database/2022/October

[8] 10%: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN

[9] 3%: https://www.cnbc.com/2023/01/17/china-reports-3percent-gdp-growth-for-2022.html

[10] 23.4 million births: https://population.un.org/dataportal/data/indicators/57/locations/156/start/1962/end/2020/table/pivotbylocation

[11] 9.56 million: https://abcnews.go.com/International/wireStory/china-announces-population-decline-recent-years-96472388#:~:text=Over%201%20million%20fewer%20babies,ticked%20up%20to%2010.41%20million.

[12] 1.5 times: https://data.worldbank.org/indicator/SP.POP.TOTL?end=1975&locations=CN-IN&start=1960

[13] smaller last year: https://edition.cnn.com/2023/01/18/china/china-population-drop-explainer-intl-hnk/index.html#:~:text=The%20country

[14] remains on track: https://fortune.com/2023/01/17/india-china-population-decline-worlds-most-populous-country/

[15] artificial intelligence and robotics: https://www.science.org/content/article/china-s-massive-investment-artificial-intelligence-has-insidious-downside

[16] Chinese dream: https://asia.nikkei.com/Economy/Tough-challenges-ahead-for-Chinese-dream

[17] fell: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD