Major changes are underway in China's economy. The Uncertainty they are creating is a further demonstration of the transition to a VUCA world that is now underway.
The changes reflect the impact of 2 quite different developments:
• General economic slowdown, due to the loss of Western export markets
• The loss of 400m babies, due to the 'one child policy'
Both are secular, not cyclical trends. So they cannot be 'solved' by government stimulus programmes. Of course, this doesn't mean that policymakers won't continue to try this 'quick-fix approach'. It just means, as we discuss in chapter 6 of 'Boom, Gloom and the New Normal', that their measures will only have a temporary impact.
The 'solution' to the export problem is to refocus on the domestic economy. But this will take time. Chinese incomes are one-tenth of western levels, and so domestic demand is not for Western middle-class goods. Instead it is for $100 refrigerators and affordable basic needs.
The second problem is even more complex to solve. As the chart shows, China's population is ageing fast:
• There were 571m in the 0 - 24 age group in 1990 (red column), but only 486m in 2010. By 2030, their numbers will be down 37% to 362m
• Similarly, the critically important Wealth Creator 25 - 54 age group (blue) is now declining. This will dramatically slow potential growth rates
• Meanwhile the New Old 55+ generation will grow 84%, from 246m in 2010 to 452m in 2030. They will be 32% of the population
Already, these two trends are starting to impact the wider economy and consumer demand. Bloomberg reports that China's retailers are suffering a major slowdown. Electronics, sportswear and other stores are reporting "inventory overloads, discounting and losses for some brands".
As in the West, the focus has been on selling to a younger population. Most companies have failed to devote any effort to researching the new affordable products and services that will be required by China's rapidly ageing population.
The good news, of course, is that this creates a lack of real competition. So any company that does decide to enter these markets is likely to do very well indeed. And it will have decades of assured growth ahead of it.