PGJ - Demographic shift: China's population shrinks for second straight year

2024-01-17 06:00:46 ET

A historic shift continues to take place in China that is having impacts on both the domestic and global economy. According to the National Bureau of Statistics, the nation's total population fell by over 2M in 2023 to 1.41B, marking the second straight year of contraction. The decline also more than doubled that seen in 2022, when the Chinese population shrank for the first time since the Great Famine of the Mao Zedong era in 1961.

Snapshot: China has long been a key source of labor and demand, but its birth rate has continued to decline as couples delay or decide against having children. That's despite the lifting of the government's one-child policy in 2015 , and incentives rolled out in 2021 that encouraged people to have more babies (tax deductions, housing subsidies and longer maternity leave). Sky-high education costs have also led to one of the lowest fertility rates in the world, as well as a trend towards urbanization in a country that had traditionally been rural.

Somewhat of a bright spot was seen in fresh data overnight as China's GDP growth expanded by 5.2% in 2023, beating the official target of "around 5.0%." Others are not convinced as the figure is still way lower than historical growth rates and has consistently failed to meet expectations for a strong post-COVID pandemic bounce. Among the pressures are weak consumer and business confidence , mounting debt problems and a spiraling property crisis . In fact, the mainland Chinese stock market was one of the world outliers last year, with the benchmark CSI 300 Index of major Shanghai and Shenzhen-listed stocks sliding around 20% compared to gains seen across the globe.

Looking for growth: The demographic trend calls into question whether China will get old before it gets rich. As deaths outstrip births, Beijing has rolled out plans for a so-called "silver" economy, which is estimated to be worth 30T yuan ($4.2T) by 2035 and account for about 10% of GDP. Services include meal delivery and entertainment to nursing homes and eldercare, as well as industrial parks that will support products for senior citizens. To encourage development, banks will be enticed to extend credit to the businesses involved in the silver economy, while local governments will be able to issue special bonds to finance the transition.

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