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Monday, June 27, 2011

Wonderland?

If China can navigate through the demographic changes of the next two decades, let's talk of China's rise and potential as a new world leader replacing America. Our current leadership may be working overtime to send us into decline with our leadership's perverse pride in "leading from behind," but at least we can choose to reverse course. Can China?

Over the next few years China will undergo a huge demographic shift. The share of people over 60 in the total population will increase from 12.5% in 2010 to 20% in 2020. By 2030 their number will double from today’s 178m. The dependency ratio—the number of people of non-working age, both young and old, as a proportion of those of working age—will bottom out between 2012 and 2015 at an exceptionally low level before rebounding, says a report by the Chinese Academy of Social Sciences. Put another way, China’s “demographic dividend”—the availability of lots of young workers—which helped fuel its growth will soon begin to disappear. The overall population will start to grow faster than that of working age. One trigger for this could be a sharp economic slowdown. Many Chinese have recently become familiar with the “Lewis turning point”, named after a 20th-century economist from St Lucia, Arthur Lewis, who said that industrial wages start to rise quickly when a country’s rural labour surplus dries up.

I never heard of the Lewis turning point, but I've droned on about it for years, it seems:

Like the old Soviet Union, China’s economic growth is coming from moving peasants to city factories. And even the most productive peasant turned into the most inefficient factory worker will produce more GDP and bump up national statistics. This is not sustainable. Eventually, established workers must become more efficient for an economy to really take off.

I addressed this point again recently when I note that this era may be China's Golden Age. By 2100, things could be quite different.