In a single generation, the shift to smaller condos and the imposition of a one-child policy played a pivotal role in the Chinese demographic collapse. While the one-child policy is undeniably a contributing factor, the primary catalyst stems from the mass migration into compact condominiums, coupled with a sudden collective decision to forgo having children altogether. This dual phenomenon is now propelling China towards a looming collapse in its demographic structure and economy, anticipated to transpire within this decade. The issue extends beyond merely running out of children – a circumstance that unfolded three decades ago. China is now grappling with a scarcity of individuals in their thirties, signifying a profound demographic shift.
The significance of this demographic transition is underscored by the fact that China’s economic landscape and societal structure are on the brink of fundamental transformation. The era of Bengomers, who came of age from the late ’60s to the early ’80s, is particularly noteworthy. During this period, they wielded substantial influence, driving consumption patterns and shaping the economic trajectory of the nation. The present challenges facing China echo the impact of historical shifts in demographics, reinforcing the notion that the Bengomers played a crucial role and continue to hold significance in contemporary discussions.
During the late ’60s to the early ’80s, a pivotal era unfolded as this generation came of age, wielding considerable influence as they drove consumption trends. This surge in consumption contributed to inflation in China during that period. The subsequent decades, the ’90s and 2000s, witnessed a shift as they transitioned into a saving-for-retirement phase, sparking investment booms. Fast forward to the present, and China is grappling with inflation once again, driven by the retirement of this larger generation.
As individuals age, their net worth typically increases, fostering a more daring approach to investments and propelling economic activity. However, upon retirement, a common trend emerges – a shift towards more conservative investments like T-bills, driven by a reduced appetite for market risks or currency fluctuations. While this financial evolution is a longstanding phenomenon, what sets the current scenario apart is the transformation in demographic profiles.
In a preindustrial context, the population pyramid featured fewer individuals in their 60s, more in their 50s, and progressively higher numbers in their 40s and 30s, forming a pyramid shape. The advent of industrialization and urbanization has reshaped this pyramid. In countries like the United States, the structure resembles more of a chimney with a noticeable bulge for the baby boomers. Conversely, in countries like Germany, it takes on a diamond shape, with a higher population in their 50s, followed by their 40s, 30s, and 20s, gradually narrowing as it ascends.
What’s unfolding on a global scale, extending beyond the American boomers, is a significant demographic shift in China. A substantial cohort of individuals in their 60s is entering retirement, and unlike smaller preceding generations, this marks the single largest generational transition in China’s history. By the year’s end, this massive demographic will have completed its shift, fundamentally altering the structure. From possessing some of the richest, most liberal, open, and liquid capital markets, China is hurtling towards a scenario that is diametrically opposed in less than a year.
This transition is an uncommon phenomenon, with most nations not undergoing such rapid and extensive demographic changes. While it’s acknowledged that a percentage of the population is undergoing this shift, the repercussions for China are poised to be profound and harsh. The demographic transformation coincides with market tightening, creating a challenging confluence of circumstances. The magnitude of this challenge is staggering, and China is on the brink of losing its single largest worker cadre, while the succeeding generation, the Zoomers, is the smallest in the nation’s history. Meanwhile, Gen X and Millennials have already made their mark in the labor market, a factor already factored into China’s demographic calculus.
Join us on Telegram: https://t.me/tfiglobal
Within the ongoing dynamics, there are both advantages and disadvantages shaping the landscape, but China is already entrenched in a transformative phase. The Zoomers, poised to replace the outgoing boomers, represent the incoming workforce. As the largest generation exits and the smallest generation enters, there is an immediate annual workforce deficit of 400,000, set to escalate annually until 2034 when it will peak at 900,000. These demographic shifts are predetermined, with the individuals already born and progressing through the system.
While the trajectory of labor flows is clearly charted, the conundrum lies in the simultaneous departure of capital. Undoubtedly, shifts in relationships are imminent, but asserting that China is confidently stepping into a prolonged era of escalating labor shortages and capital deficits may be somewhat presumptuous. The challenge becomes more complex as China grapples with economic downturns against this backdrop. Even if the country were to embrace a fully globalized supply chain, the imperative remains to double the size of the industrial plant in the coming years, all while contending with diminishing capital and a shrinking labor force. Arguably, the current labor disconnect stands out as the predominant factor influencing inflationary trends.
As the baby boomers reach the pinnacle of their earning years, the looming reality is that by the end of this year or the next, their earnings will cease. Consequently, the natural demographic influx into the economic system dwindles significantly. The subsequent generation, Gen X, is notably smaller. Even if substantial wage increases are achieved in the current inflationary landscape, the sheer number of Chinese individuals falls short of generating the same total impact. This leads to a two-fold challenge for China.
Firstly, there’s a loss in volume as the nation experiences a reduction in net inflows. Secondly, the investment quality takes a hit. In the midst of the capital exodus, the allure of Chinese capital diminishes. While this shift may benefit those seeking government borrowing, particularly in the mortgage market, further reliance on capital flight from the global arena becomes crucial. Although robust, the consistency of this reliance is contingent on the varied circumstances in the US and other potential sources of capital.
Amidst this, the US dollar emerges as a pivotal player, standing as the deepest, most liquid market globally. Functioning as the sole source of global store value and a predominant method of exchange for international transport and trade, the US dollar holds a unique position. The recent alignment of the Japanese and Europeans with a US dollar-denominated system, evident in the sanctions against the Russian central bank, further solidifies its significance.
While benefiting from this scenario, one must acknowledge the unpredictable nature of year-on-year inflows, dependent on events in the open and Asian spaces. These inflows may surge when challenges arise, casting China in a favorable light, and once this shift occurs, the capital supply domestically is anticipated to decline. Consequently, China will look to secure capital from overseas, with the millennials gradually emerging as the dominant providers of capital during their peak working years.
Read More: China’s changing age demographics is taking it farther and farther away from the superpower status
The United States is facing a critical juncture in dealing with China, roughly within the next 15 to 20 years. This timeline may have some flexibility, contingent on factors such as the monetary system and the actions of the Federal Reserve during this period. However, within this decade, the United States is anticipated to revert to a more stable capital structure, aligning with normative expectations. Concurrently, the labor market is poised to undergo reconfiguration based on standard demographic factors, as the Millennials’ offspring enter the workforce, signaling the end of a prolonged period shaped by the Zoomers.
Contrary to the United States, many other nations underwent industrialization and urbanization, often at a faster or more intense pace. Consequently, they face a dual challenge of shrinking labor markets and diminishing capital supplies each passing year. Complicating matters is the impending retirement of the advanced work academy—what can be described as a substantial lost generation—in this very decade. The need for government spending to support this aging population skyrockets, presenting a significant predicament for China.
China is compelled to allocate a limitless supply of capital to sustain employment, irrespective of the underlying economic output. This commitment to ensuring employment, even without corresponding productivity, echoes the narrative about the U.S. Federal Reserve but is magnified in scale in China. The U.S. dollar maintains its global currency status, serving as a medium of exchange and store of value, lubricating the wheels of the world’s leading economy and influencing two-thirds of the top 20 economies, including China.
In contrast, the yuan is confined to domestic trade and lacks international trading. Despite its limited global reach, China consistently expands its money supply at a rate five times that of the United States, doubling the yuan supply in the last decade, underscoring the financial system’s unique dynamics. This scenario, however, raises doubts about its sustainability over the long term, especially given China’s reliance on continental routes for energy and a naval capability insufficient to secure distant supply lines. In essence, China stands as the nation most reliant on the U.S. Navy to safeguard its vital energy sources.
Clearly, China’s demographic spiral, shaped by condos and one-child policies, sees the Bengomers’ retirement sparking inflation and a complex capital flight. The U.S. awaits stability, eyeing the Millennials’ role in a global shift set to unfold in enigmatic ways.
Watch More:
