The world is aging. This sounds like a trite comment. While the total global population inexorably lurches toward 8 billion souls, many of those souls are getting increasingly older.
For an interesting set of infographics on global populations, you can always check out World o Meters who does an interesting take on just how quickly we are filling up the planet.
That said, not all countries are equal in this regard. A general observation is that as economies mature, birthrates tend to fall.
The theory suggests that as households become affluent, they choose to concentrate their wealth. In doing so, they seek to provide the best chance for a smaller group of offspring. Also, the rising cost of living in more developed economies curtails family growth.
The inverse is that in lower income regions, families tend to be large. This serves to increase the pool of successors and potential breadwinners. The extended family structure is intended to as as a safety net. I’m not a sociologist so I will not get into those arguments.
The storks are on strike
Firstly, I will distinguish between the ‘Total Fertility Rate’ (TFR) and conventional birthrate per 1000. TFR’s below 2.1 are considered ‘sub-replacement’ rate and implies that population growth will turn negative. The birthrate per 1000 shows current population growth rates.
The first chart below shows the TFR. Anything dark green or any shade of blue is sub-replacement.
Lets overlay this with birthrates globally. We can see that Africa and a selection of other emerging markets account for the highest fertility and birthrates. However, most of the ‘developed’ world exhibit birthrates well below replacement ratios.
China – one child, two child, three child… Score!
In China, the world’s most populous country, the slowdown in population growth was not organic. In the 1980’s China embarked upon a One-Child policy. This was contentious at the time (and even now). However, the intent from the Chinese authorities, was to do what was right for sustainable growth and stability.
At the time, the birthrates in China were not dissimilar from birth rates currently experienced in South Africa (it would be green in the map above).
Now, one must be cognizant that massive ‘social engineering’ projects like the One-Child policy take time to manifest. It took several years for Chinese growth rates to start declining. However, once underway , the process has proven irreversible thus far.
In 2016, the Chinese government, was cognizant of the demographic ‘cliff hanger’ it faced. It relaxed the One-Child policy to a ‘Two-Child’ policy, but this has not had the intended effect. Birthrates have continued to decline.
Double or Quits
Against this backdrop, the Chinese hegemon is doubling down. Earlier this week the ruling party, under the leadership of President Xi Jinping, agreed to implement the policy of allowing one couple to have three children. Lost among the global narrative though is the supplemental proviso that the Chinese government will also consider “supporting measures” which “are conducive to improving China’s population structure.”
Lets look at the ‘population pyramid’ of China in 1980 (One Child policy) to today. We can see how the ‘burden’ of an aging population on a shrinking workforce may compromise social stability.
This phenomenon is not much different to a similar inversion in demographic pyramids in much of the developed world where the problem is arguably more acute.
The share of working-age people 15 to 59 in the population fell to 63.3% last year from 70.1% a decade earlier. The group aged 65 and older grew to 13.5% from 8.9%.
The higher cost of raising kids as well as costs associated with looking after the elderly (who are themselves a growing proportion) are all previously-cited reasons for the lack of uptick in population growth in China since 2016. This is specifically why the ‘supporting measures’ mentioned above are so critical.
The Chinese are long term planners. I wrote about this as well as their approach to policy changes and reviews quite some time ago here as well as discussing some of this in our very early 2nd Magic Markets podcast China’s Electrical Storm.
As such, comments like ‘supporting measures’ are no coincidence. China has reflected on what’s happened since 2016. They are making a policy adjustment, not changing direction.
The news of a 3 Child policy is hence, not a change in strategic direction rather than a recalibration of a stated policy objective over the long term. With an unemployment of below 5% , China’s aim to allow people to work longer as well as a touted improvement in retirement benefits are all part of the playbook.
So what’s this mean for me?
In a rapidly aging world with fertility and birthrates trending toward replacement ratio (its currently 2.4 vs. 2.1), ‘organic growth’ should theoretically start to taper off. The disparities in different geographic regions means that some regions will experience massive growth. Others will recede.
In emerging markets with large population growth, the challenge will be to ensure that this is a ‘demographic dividend’ rather than a ‘demographic drain’. This would entail a necessary focus on education and healthcare outcomes in order to bolster the ‘value’ of this human capital endowment.
In the developed world, smaller workforces and larger contingents of retirees will have a profound implication on spending and savings patterns. This in turn will affect everything from investment behavior to trends in property markets.
The rise of robotics and fully integrated retirement communities as lifestyle resorts of sorts are just some of the micro changes that a macro change like this can have. Longer life expectancies will also give rise to greater pension burdens and a required re-assessment of actuarial assumptions underpinning many retirement and social safety net programs.
In many of these respects, the Chinese are merely the most visible manifestation of global mega trends. China’s unique ability to directly influence many underlying aspects of their society is key. Through social engineering, China is also best placed to try and mitigate the risks that such mega trends pose. What this means for civil liberties is an entirely different discussion but, this will make for interesting observation.
Parting thoughts – Demographic delights or demons
A parting thought, if the Chinese manage to even marginally move the needle on fertility and birthrates, bear in mind that the base of a 1.5bn population will have significant ramifications for longer term demand for resources, infrastructure and food to name a few. Let that sink in.
Emerging markets in general have a demographic boon, provided they can adequately plan and position themselves for the coming changes. This coupled with the fact that many remain resource exporters to the likes of China all serve for a potent mix in an increasingly multi-polar global order.
Investors and policy makers alike, would do well to consider these dimensions when making strategic decisions. With planning and foresight, there is no reason why demographic delights need to turn into the demographic demons of tomorrow.
There’s more to what Moe Knows than I can fit into a blog post. If you’re looking for some help unpacking these mega trends and what it means for your corporate or investment strategy, feel free to reach out. Moe Knows offers our services to corporate boardrooms, treasuries and asset managers alike. Reach out here.
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