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China And Demographics

Business, China, Company Strategy, Economics
By John Richardson on 16-Jul-2012

OUR last four blog posts have focused on some of the big challenges confronting China’s economy over the next 12-18 months.

Today we again switch our focus to how major changes in demographics could adversely impact longer-term growth prospects.


By John Richardson

NanjingRoad.jpgCONTINUING high rates of urbanisation are constantly cited by chemical industry executives as a reason to be bullish over China’s long-term demand-growth prospects.

But urbanisation appears to be slowing down as a consequence of the huge shift that has already taken place of China’s rural population to its towns and cities.

“The number of workers migrating from the countryside to the cities peaked at 18m in 2008 and has averaged around 14-15m a year in the ten years that we have the data for,” said Dr Clint Laurent, general manager of Global Demographics – the Hong Kong-headquartered demographic and socio-economic forecasting service.

“The big surge in migration has involved 15-34 year olds as this age group has moved from planting rice to earning three times as much in the cities and the towns,” he added.

“This has decimated rural communities, dramatically reducing their fertility rates and therefore the number of new 15-year-olds coming through.

“As a result, the rural-urban migration will fall to just 4 million by 2032 – an insignificant number in a workforce the size of China’s.”

The disastrous one-child policy is China’s much-bigger demographic challenge.

“China needs to make the right policy choices in order to compensate for its one-child policy. There is, of course, a risk that it will make the wrong decisions,” continued Laurent.

One of the big challenges will be to meet the pension, and healthcare, liabilities of a rapidly ageing population.

“Over the next 20 years, the ratio of workers to retirees (presuming workers continue to retire at 60) will drop precipitously from roughly 5:1 today to just 2:1,” wrote Wang Feng, director of the Beijing-based Brookings-Tsinghua Center for Public Policy in the June 2012 issue of the online economic research publication, the China Economic Quarterly.

“China’s rapidly ageing population will have enormous economic and social implications. The demographic dividend China enjoyed over the past 30 years – especially in 1980-2000 – is now largely exhausted,” he added.

Between 15-25% of the country’s 1980-2010 GDP (gross domestic product) growth was the result of a favourable age structure, he said.

“As China’s demographic fortunes reverse, the economy will slow down regardless of other factors driving growth,” continued Wang.

And as Laurent also points out, chemicals and other companies need to respond to the changing nature of demand resulting from China’s huge demographic shift.

“If you’re the marketing director of Coca-Cola, Nike, Pepsi and Disney, or any other child brand, you have a problem over the next decade as the size of the market is going to shrink,” he said.

This also applies to the chemicals and polymer companies that supply raw materials to companies such as Coca-Cola, Nike, Pepsi and Disney.

As the population ages, there will also be a surge in demand for health and wellbeing products, added Laurent – creating a big opportunity for the chemicals industry.