China – A demographic perfect storm is coming

The idea that the so-called “demographic dividend” is coming to an end for China is not a new one.  Yet not many people are sufficiently aware of the consequence of ageing (and shrinking) population.  Population ageing poses a headwind to asset prices, real estate in particular.  Population ageing is somewhat associated with lower inflation (if not downright deflation) and lower economic growth.  All these seem to be totally opposite to some of the now-conventional wisdom that China’s growth potential will remain at 7-8% at least for another decade or two, or that China will be an “exporter of inflation”, so to speak, instead of a disinflationary force in the past decade or two.

Nicholas N. Eberstadt published a paper some months ago on global demographic trends to 2030.  In his research, he noted that not only the Western developed world is ageing as we all knew, but also the emerging markets.  “[T]he demographic constraints on many of today’s ‘emerging markets’ – rising economies such as China, Russia and India, the places that are widely expected to serve as increasingly important engines of global growth in the decades immediately ahead – are in any case both more serious and more intractable than is generally appreciated”  (p. 17).

For China specifically, Nicholas N. Eberstadt even describe the situation as a “demographic version of ‘the perfect storm’” (p. 19), and that raises some serious questions (as we have done for the past 2 years, almost) on whether the conventional wisdom of a 7-8% growth per annum for another decade is realistic…

via China’s demographic perfect storm: the ultimate growth killer.

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