China is aging rapidly – and could therefore miss its own targets

China’s rapid rise is historically unprecedented. The country went from a bitterly poor agricultural state to the second largest economy in the world.

Within half a century, per capita economic output has increased fourfold. A seemingly inexhaustible reservoir of cheap labor made China first the world’s workbench, then the second most important destination for German exports and, for some time now, the United States’ worst adversary in its struggle for geopolitical dominance.

Economically, Chinese state capitalism has been a huge success so far. In the world recession after the global financial crisis of 2008/09, the country became the savior with its gigantic economic stimulus packages and a little later set the pace for the global economy.

While large parts of the population of the western provinces remained desperately poor, more and more citizens came to prosperity in the eastern provinces; quite a few became rich, some even super rich. The real estate market grew excessively, and at times China’s tech companies were among the most valuable companies in the world.

There seemed no longer any question that China would rise to become the world’s largest economy well ahead of the target year of 2049, the 100th anniversary of the Communist Party’s rise to power.

Doubts about China

Doubts are now in order. The US investment bank Goldman Sachs recently pushed back its own forecast from 2011, according to which China would overtake the USA as the world’s largest economy in 2025, by a decade. And if China’s economy were to consistently grow just one percentage point faster than the US economy in real terms, it would take until mid-century for China to overtake the US in overall economic performance.

There are several indications that China’s growth could slow down permanently. On the one hand, the USA is defending its top position in political economy with increasing aggressiveness. The “Pivot to Asia” announced by US President Barack Obama in 2012 drew US politicians’ attention to the East – not least in order to slow down China’s rise.

The author

Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. More about his work and his team at research.handelsblatt.com.

The legitimate concern was and is that China would use its economic power to expand geopolitical influence. The US therefore adopted a strategic mix of tariffs, export restrictions and bans on the transfer of modern technologies. The associated deliberate weakening of multilateral free trade is also causing problems for Germany.

Corona has slowed China’s rise

The Chinese economic miracle suffered serious damage from the fatal corona policy of the state leadership. Almost three years of state of emergency and mega lockdowns not only made the population call for freedom, but also temporarily ended the promised increase in prosperity.

The seemingly boundless optimism that has united the population up to now has evaporated. In a survey of 50,000 employees, every second feared losing their job this year. According to official figures, the economy grew by only three percent in 2022, and this year it is expected to be a weak five percent.

There is great uncertainty: in January, 40 percent fewer cars were sold than in the same month last year, apartment sales fell by a third, and the number of births continued to fall. Last year only 9.5 million newborns were counted, five years ago it was twice as many. Not only is the population aging rapidly, it is also shrinking – for the first time in 60 years.

>> Read also: German purchasing bosses ignore Berlin’s anti-China policy

At the end of December 2022, China had a population of 1.412 billion, around 850,000 fewer than in 2021. The Shanghai Academy of Sciences estimates that the population will decrease by almost 60 percent by the year 2100, unless there is a significant increase in the birth rate.

More important for growth prospects than the decline in population is that the proportion of people of working age is falling significantly: in twelve years almost a third of China’s population will be older than 60 years old – a development well known in Germany. What in Germany was a consequence of the “pill ban” at the end of the 1960s is in China the “one-child policy” that has been rigidly enforced for 40 years.

Currently, there is one pension recipient for every four contributors. In 2050, if the standard retirement age remains unchanged, there will probably still be two contributors per pension recipient. It’s hard to imagine that a grizzled China could take over world dominance.

China’s pension system is facing major problems

If the applicable age limits of 60 for men and 50 for women or 55 for academics remain, China will soon be confronted with a more pronounced shortage of skilled workers than Germany – only that China is much less prepared for it. Real labor immigration does not exist; before the corona pandemic, only about 700,000 foreigners lived in the huge empire.

Chinese oil company employee

In the future, China could lack numerous workers.

(Photo: imago images/Xinhua)

In addition, the fragmented pension system is considered to be overburdened. Higher standard retirement ages are just as unpopular as in Germany, but undoubtedly a potential lever to counteract declining trend growth. And while China’s birth rate was at a record low of 6.77 births per 1,000 people last year, the US population is growing steadily as a result of a higher birth rate of 10.9 children per 1,000 people and not least due to immigration.

The management has not yet found a solution to this demographic problem; all appeals to increase birth rates have so far been in vain. Politicians were able to force a marked drop in the birth rate, but even the Chinese Communist Party is unlikely to be able to push through an increase.

This is probably one of the reasons why Beijing is trying to tie emerging countries to itself with the neo-mercantilist project of the “New Silk Road”. This concept should secure sales markets, cheap production sites and the supply of raw materials. But who will do the work in the domestic factories in the future is unclear. In addition, in view of the significant rise in wages, foreign investors are already avoiding China – especially since the political leadership lost a lot of credit abroad during the pandemic and with their diplomatic dance in the Ukraine war.

>> Read also: The bitter truth about Xi’s role in the Ukraine war

In contrast, the USA is trying to lure investments and thus production facilities and jobs into the country with blatant protectionism. Donald Trump’s penchant for tariffs and Joe Biden’s Inflation Reduction Act differ in wording, but are very similar in purpose and impact.

The German economy has long benefited from the rise of China. But now it is time to revise hopes of an eternal economic miracle. Not all top managers have recognized this turning point.

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