China: No New “Demographic Dividend”

China, Company Strategy, Economics, Innnovation, Managing people

Chinas_Aging_Population

By John Richardson

ANOTHER, on the surface, stunning announcement last Friday – along with promises of root and branch economic reforms – was China’s decision to relax its one-child policy. All of these announcements followed the conclusion of last week’s crucial Third Plenum.

From now on, couples will be allowed to have two children if just one of them is an only child. Today’s system stipulates that both parents must be only children for the couple to be exempted. There are also other existing exemptions, including permission for ethnic minorities to have more than one child.

But you cannot turn 55-year-olds into 30-year-olds and so China is stuck with its demographic crisis for at least a generation. For instance:

  • One worker will soon have to support two parents and four grandparents, a phenomenon known as the “inverted pyramid, says author Gordon Chang.
  • Over the next 20 years, the ratio of workers to retirees will fall from around 5:1 to 2:1, according to the Brookings-Tsinghua Centre.
  • The number of working age Chinese fell in 2010, say some of China’s demographers and in 2012, according to the National Bureau of Statistics.  A few years ago, Beijing had said that this wouldn’t happen before 2016, adds Chang.

Minimum wages, therefore, seem likely to continue increasing at around 20% per year because of tight labour markets. This will accelerate the “manufacturing drift” of low-value manufacturing away from China. Chemicals companies need to change their sales strategies in response.

It is worth noting again that China enjoyed a fantastic demographic dividend of a youthful population, leading to a bulge in the working-age population. Between 15-25% of 1980-2010 GDP growth was due to a favourable age structure, again according to the Brookings-Tsinghua Centre.

But what about the longer term benefits of relaxation of the policy? Can this demographic dividend be replicated?

“Don’t expect a new Chinese baby boom, experts say, despite the first easing of the country’s strict one-child policy in three decades,” writes the South China Morning Post in this article.

“Some 15 million to 20 million Chinese parents will be allowed to have a second child after the government announced Friday that couples where one partner has no siblings can have two children. But the easing of the policy is so incremental that demographers and policymakers are not anticipating an influx of newborn babies at a time when young Chinese couples are already opting for smaller families, driving the country’s fertility rate down to 1.5 to 1.6 births per woman.

“‘A baby boom can be safely ruled out,’ said Wang Feng, professor of sociology at the University of California Irvine.

“’Wang noted that although Chinese couples where both parents have no siblings have for some time been allowed to have a second child, many have elected to have only one.

“’Young people’s reproductive desires have changed,’ he said.

The Financial Times added that only 8% of couples in Shanghai, who qualified to have two children under the previous policy, have applied to have two kids.

The problem is that many Chinese have simply got out of the habit of having larger families, says the FT.

Plus, as Chang points out:  “China’s one-child policy has, along with other factors, has contributed to the world’s most skewed sex ratio at birth of 117.7 boys for every 100 girls last year, according to official sources (most societies do not exceed 107 to 100).

“As a result, there are perhaps as many as 25.4 million excess males in the under-15 cohort and maybe 51.5 million overall.”

The shortage of girls is, obviously, another reason for birth rates that are likely to remain well below the population replacement rate of 2.1  babies per mother.

Chemicals companies need to accept that unfavourable demographics will drive demand in China. They need to get on with creating with the products and services that an ageing population will require – in coordination with consumer goods manufacturers.

This will often require companies to go right back to the drawing board, requiring more investment in research and development.

PREVIOUS POST

Re-assembling China's Incentive Systems

17/11/2013

By John Richardson ON the surface, further details about decisions taken during ...

Learn more
NEXT POST

Australia: Nice Work If You Were Able To Get It

19/11/2013

By John Richardson BACK in the late 1990s, the blog held a discussion with an Au...

Learn more
More posts
Omicron, petchems and the developing world: we might get lucky this time, but maybe not next time
02/12/2021

By John Richardson UNTIL ALL of us are adequately vaccinated none of us are sufficiently protected i...

Read
Benzene, the need for a new global Industrial Revolution and the big challenges that lie ahead
30/11/2021

By John Richardson THE CHART BELOW shows that 60% of global benzene production in 2021-2040 is forec...

Read
Global polypropylene could also move from inflation to deflation in Q1 next year
23/11/2021

By John Richardson WE ALL NEED TO ASK ourselves whether the global patterns in polyethylene (PE) and...

Read
Global polyethylene could move from inflation to deflation by as early as Q1 2022
22/11/2021

By John Richardson THE BALTIC DRY INDEX, one of the excellent barometers of overall economic activit...

Read
As China coal shortages end, polyolefins margins reach historic lows on oversupply
17/11/2021

By John Richardson AGAIN, DON’T say I didn’t tell you. In my 11 October blog post, having talked...

Read
Dip in Chinese PP exports only temporary with Q1 2022 resurgence looking likely
15/11/2021

By John Richardson TRADE DATA when combined with price assessments, supply and demand estimates and ...

Read
Global polyethylene supply could lengthen, becoming a buyers’ market, sooner than many people think
12/11/2021

By John Richardson RARELY, IF EVER, have events felt so bafflingly complex in the global polyethylen...

Read
China could either see net imports of 63m tonnes in 2021-2031 or net exports of 18m tonnes!
09/11/2021

By John Richardson CONFUSED BY the above chart? Once again I certainly hope so, provided confusion i...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more