Risks & Trends

by Malcolm Riddell

China's demographic challenges
4

'China: Getting Old Before Getting Rich'

Foreign Affairs

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Nicholas Eberstadt | American Enterprise Institute
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May 27, 2021
'China: Getting Old Before Getting Rich'
'China: Getting Old Before Getting Rich'
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Nicholas Eberstadt | American Enterprise Institute

China's demographic challenges

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BIG IDEA | ‘Over the past two generations, China has seen a collapse in fertility, exacerbated by Beijing’s ruthless population-control programs.’
‘With decades of extremely low fertility in its immediate past, decades more of that to come, and no likelihood of mass immigration, China will see its population peak by 2027.’

‘China’s growth since the 1970s is usually attributed to the policies of Deng Xiaoping, who pushed the country in a more market-friendly direction after becoming the paramount leader in 1978.’

  • ‘But demographics also played a critical role.’

‘Over the past two generations, China has seen a collapse in fertility, exacerbated by Beijing’s ruthless population-control programs.’

  • ‘The one-child policy, introduced in 1979, was ended in 2015, but the damage had already been done.’
  • ‘China’s total fertility rate (TFR) has been below the replacement level of 2.1 children per woman since at least the early 1990s.’

‘With decades of extremely low fertility in its immediate past, decades more of that to come, and no likelihood of mass immigration, China will see its population peak by 2027.’

  • ‘Its working-age population has already been shrinking for the past five years, and it is set to decrease by at least 100 million between 2015 and 2040.’
  • ‘The country will see a particularly large decline in its working-age population under 30, which may plunge by nearly 30 percent over these years.’

‘Although this rising generation will be the best educated in Chinese history, the country’s overall growth in educational attainment will slow as the less educated older generations come to make up a larger and larger share of the total population.’

  • ‘The Wittgenstein Centre for Demography and Global Human Capital estimates that by 2040, China’s adult population will have fewer average years of schooling than that of Bolivia or Zimbabwe.’

‘As China’s working population slumps, its over-65 population is set to explode.’

  • ‘By 2040, China could have twice as many elderly people as children under the age of 15, and the median age of China’s population could rise to 48, up from 37 in 2015 and less than 25 in 1990.’
  • ‘No country has ever gone gray at a faster pace.’
  • ‘On the whole, China’s elderly in 2040 will be both poor and poorly educated, dependent on others for the overwhelming majority of their consumption and other needs.’

‘Under the one-child policy, for instance, Chinese parents often opted for an abortion over giving birth to a girl, creating one of the most imbalanced infant and child sex ratios in the modern world.’

  • ‘In the years ahead, China will have to deal with the problem of tens of millions of surplus men, mostly from disadvantaged rural backgrounds, with no prospects of marrying, having children, or continuing their family line.’

‘China will also face a related problem over the next generation, as traditional Chinese family structures atrophy or evaporate. Since the beginning of written history, Chinese society has relied on extended kinship networks to cope with economic risks.’

  • ‘Yet a rising generation of urban Chinese youth is made up of only children of only children, young men and women with no siblings, cousins, aunts, or uncles.’
  • ‘The end of 2,500 years of family tradition will be a departure into the unknown for Chinese civilization—and Beijing is manifestly unprepared for this impending great leap.’

Bloomberg

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Matt Levine | Bloomberg
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VIEs
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Part 1 | 'Owning Chinese Companies Is Complicated'

‘ “Variable interest entities”(VIEs): The problem with this is that it sort of sounds like you’re kidding. But this is a standard method for mainland Chinese internet companies to go public, and the market has come to accept it.’
7/22/2021

Bloomberg

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Matt Levine | Bloomberg
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VIEs
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Part 2 | The DiDi VIE (as an example)

‘The prospectus has a diagram, above, of the corporate structure, which looks almost normal. But everything below the double arrow — the actual ride-hailing business, etc. — is slightly askew.’
7/22/2021

Bloomberg

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Matt Levine | Bloomberg
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VIEs
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Part 3 | Revising the Rules

‘The Chinese government could declare “all these VIE contracts are actually a disguised form of foreign ownership, which is not allowed by the rules, so they are all void and your Didi and Alibaba shares are worthless.” ’
7/22/2021

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Malcolm Riddell
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VIEs
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China: Signals Blinking Red & Oops, We Missed the Risks

I had intended to make this issue all about ‘Variable Interest Entities’ (VIEs) and the emerging risks to about $1.8 trillion dollars’ worth of Chinese shares listed on U.S. exchanges – that is, 4% of the capitalization of the U.S. stock markets.
7/22/2021

Nikkei Asia

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VIEs
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'Crackdown on US listings: Will China close $1.6tn VIE loophole?'

‘If Chinese authorities start to question “Variable interest entities”(VIEs), amid the crackdown that has already battered ride-hailing company Didi Global -- another VIE user -- the resulting loss of investor trust could send shock waves through global financial markets.’
7/22/2021

Financial Times

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Jamie Powell | Financial Times
7/22/2021

Foreign Policy

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Sulmaan Wasif Khan | The Fletcher School of Law & Diplomcy, Tufts University and the author of 'Haunted by Chaos: China’s Grand Strategy from Mao Zedong to Xi Jinping'
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China's Grand Strategy
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1 | 'Wolf Warriors Killed China’s Grand Strategy—and We'll All Come to Miss It'

‘The predominant feature of Chinese conduct today is not grand strategy but a belligerent, defensive nationalism that lashes out without heed of consequences.’ Sometime in 2020, China came unmoored from its grand strategy.
6/3/2021

Foreign Policy

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Sulmaan Wasif Khan | The Fletcher School of Law & Diplomcy, Tufts University and the author of 'Haunted by Chaos: China’s Grand Strategy from Mao Zedong to Xi Jinping'
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China's Grand Strategy
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2 | Blame It on Xi

‘In China’s case, the Xi era has seen the accumulation of somewhat counterproductive policies that catalyzed a breakdown.’
6/3/2021

Foreign Policy

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Sulmaan Wasif Khan | The Fletcher School of Law & Diplomcy, Tufts University and the author of 'Haunted by Chaos: China’s Grand Strategy from Mao Zedong to Xi Jinping'
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China's Grand Strategy
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3 | Enter the ‘Wolf Warriors’

‘What changed in 2020 was that nationalism for its own sake became the predominant motif of Chinese conduct.’
6/3/2021

Foreign Policy

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Sulmaan Wasif Khan | The Fletcher School of Law & Diplomcy, Tufts University and the author of 'Haunted by Chaos: China’s Grand Strategy from Mao Zedong to Xi Jinping'
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China's Grand Strategy
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4 | Why China Abandoned Its Grand Strategy

‘The most persuasive explanation is that China has poisoned itself through its own rhetoric.’
6/3/2021

Foreign Policy

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Sulmaan Wasif Khan | The Fletcher School of Law & Diplomcy, Tufts University and the author of 'Haunted by Chaos: China’s Grand Strategy from Mao Zedong to Xi Jinping'
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China's Grand Strategy
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5 | Two Caveats

‘Highlighting the strategic questionability of China’s policies doesn’t mean that Beijing’s fears of the outside world are completely unjustified.’
6/3/2021

Foreign Policy

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Sulmaan Wasif Khan | The Fletcher School of Law & Diplomcy, Tufts University and the author of 'Haunted by Chaos: China’s Grand Strategy from Mao Zedong to Xi Jinping'
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China's Grand Strategy
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6 | The Risks & the Dangers

‘The real danger is that once toxin has spread through the system, there is no knowing where it will end.’
6/3/2021

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Malcolm Riddell
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China's Grand Strategy
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Killing China's Grand Strategy

Trend: Under the Xi Jinping administration, China has amped up abrasive ‘Wolf Warrior’ diplomacy; cracked down within its borders, despite protests and criticisms from other countries; become increasing bellicose in responding to those protests and criticisms, and any other pushback it doesn’t like; and increased its aggressive rhetoric and actions against neighbors. Risks: If this sounds like a problem just for the world’s Ministries of Foreign Affairs, think again – the impact extends deep into business and finance.
6/3/2021

Project Syndicate

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Shang-Jin Wei
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Columbia University

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China's demographic challenges
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'Sex and the Chinese Economy'

‘A rise in China’s male-female ratio may have contributed to between one-third and one-half of the increase in its trade surplus with other countries.’ ‘The sex imbalance thus likely underpins an important source of tension between China and the US. Yet bilateral engagement has paid scant attention to this linkage.’
5/27/2021

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Malcolm Riddell
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China's demographic challenges
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'Demography + Technology is Destiny'

The census showed that the number of births nationwide fell to the lowest level since 1961, following a nationwide, manmade, famine caused by Mao’s “Great Leap Forward” that killed tens of millions of people, and that China’s total population could peak in the next few years.
5/27/2021

Bloomberg

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China's demographic challenges
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'China: Births Falling'

‘China’s total population could peak in the next few years, spurring profound changes for the world’s second-biggest economy.’
5/27/2021

Bloomberg

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China's demographic challenges
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'China Bets on Productivity Over Population to Drive Its Economy'

‘Beijing has a two-pronged approach to maintaining economic growth as its population shrinks.’ ‘First, it intends to slow the decline of the urban workforce by raising the retirement age and encouraging migration of more of the country’s 510 million rural residents to cities.’ ‘Second, it plans to raise productivity -- a measure of economic output per worker -- with the latest five-year plan emphasizing better vocational education and more investment in scientific research, automation and digital infrastructure.’ [see second chart above]
5/27/2021

Financial Times

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Gideon Rachman | Financial Times
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China's demographic challenges
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'Lousy demographics will not stop China’s rise'

‘The old maxim ‘demography is destiny’ no longer holds in the same way that it used to.’ ‘A shrinking and ageing population may not have the same gloomy implications in the 21st century.’
5/27/2021