The economy of China is an important issue for the World as the growth of China’s economy since the late 1970’s has been one of the most important factors driving the World economy over that same time frame. Certainly other factors have played into the World’s economic growth over the last 40 or so years, such as the dissolution of the Soviet Union and their satellite communist states throughout Eastern Europe and the great advancements in productivity brought about in large part by advances in computer technology, but having over a billion people essentially become participants in the World economy has been the single greatest recent driver of economic growth. Three important and interrelated trends in China, though, point toward China being a driver of the World’s economic growth slowing and slowing appreciably. And these trends are not related to the recent turn toward a more authoritarian and avowedly Marxist Xi Jinping led Chinese Communist Party which rules China.
First and most importantly, China’s demography is no longer as favorable toward economic growth. As has been stated repeatedly, China had very favorable demographics for much of its recent growth with high percentages of the population being of working age and relatively small percentages either below working age or above working age. Those demographic benefits are in the process of turning into demographic burdens as China ages. China had too few children for too long and now those tens of millions of workers are beginning to retire, creating dependents which will need to cared for by present workers. China’s fertility rate has been below replacement value since the early 1990’s and has only gotten worse in the last few years. As Japan has demonstrated, a larger and larger percentage of the population past working age can only slow economic growth.
Second, another factor fueling China’s economy over the last 40 years or so was the movement of the population from being overwhelmingly rural to majority urban. In 1982, China’s population as a whole was a little bit over 20% urban. Now the population is over 60% urban. The workers in China’s urban factories are in many cases rural migrants. As the rural population has dropped from about 80% to less than 40% of the population as a whole, the pool of rural migrants to work in urban factories must have necessarily dropped as well. In addition, even with more efficient agricultural practices, China’s ability to feed their population has been hampered by the decrease in the rural population. Continuing urbanization cannot continue indefinitely. At the Annual Central Rural Work Conference in 2013, the Chinese Communist Party acknowledged that the country would have to supplement its domestic food supply with “moderate imports” in order to meet food security needs. The rural to urban migration was another demographic trend which was helping to fuel China’s economy which is not sustainable into the future.
Thirdly, a prime driver of China’s economy was the domestic real estate market. Hundreds of millions of people moving from rural to urban areas needed housing. The destruction caused by World War II and the Chinese Civil War, let alone the desolation of the Maoist years, meant that there was a dearth of housing in China in the late 1970’s. Building those hundreds of millions of housing units has helped fuel China’s domestic economy, and not only the actual construction of the housing units but everything that goes into a new home and all the other infrastructure that accompanies an expanding urban population. In addition, it seems to be an acknowledged fact that local governments have derived and continue to derive a large proportion of their revenue from land sales on which these housing units are built by developers. As the supply of housing meets demand, especially with a shrinking population, then that source of government revenue will necessarily decline and will need to be made up elsewhere, which will be very difficult in light of the fact that the number of workers for each non-worker is only decreasing due to China’s unfavorable demographics. The quality of the construction of these tens of millions of housing units is also likely to be a source of greater and greater concern. Rapid buildouts with little oversight do not lend themselves to lasting quality. As substandard construction becomes more and more evident with age, China’s densely populated urban areas will discover what many American cities have, that it is cheaper and easier to build on virgin land than redevelop poorly planned and executed existing construction that is crumbling.
The peoples of the World have benefitted from the products generated by hundreds of millions of Chinese workers over the last three to four decades, even if many of those workers have benefitted relatively little themselves. As the demographics of China turn from favorable to decidedly less favorable, the hidden costs of the World’s reliance on China will become more and more evident in the years and decades to come.