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May 20, 2022

Will China get old before it gets rich?

As the world continues to be rocked by inflationary pressures, one cannot help but look at this alongside China’s dropping fertility rate and wonder: will China get old before it gets rich?

With Shanghai announcing zero new Covid-19 infections for the third day in a row on 17 May, the city seems set to come out of lockdown in June. However, the economic impact of the strict lockdowns imposed across China cannot be overstated.

China’s lockdowns

The lockdowns in April impacted the retail and manufacturing sectors in China more than analysts expected. Retail sales fell by 11.1% in April compared to last year, and industrial production fell by 2.9%. In comparison, Reuters predicted a drop in retail of just 6.1% and a slight increase of 0.4% in production.

Companies and supply chains around the globe were affected. Workers lost income and jobs, while people locked in apartments for weeks were unable to spend, except on food. To put a more corporate spin on it, the CEO of ecommerce giant JD.com said in a post-earnings call that “consumers are facing loss in income and confidence, and overall consumption is sluggish”.

The social impact

The lockdowns have also highlighted China’s population crisis. A video that went viral on China’s internet showed a police officer threatening a Shanghai family, saying, “If you don’t obey the orders from the city government, you will be punished, and the punishment will affect three generations in your family.” A man then replied off-camera, “We are the last generation, thank you.” This resonated with a population that is often choosing not to marry or have children, shown in the growth of the ‘Lying Flat’ movement in which people reject the expectations of society and instead do the bare minimum to get by.

Despite moves by the government to allow couples to have up to three children and announcing that retirement ages will be gradually delayed through to 2025, the birth rate in China has fallen to its lowest in seven decades. According to the Ministry of Civil Affairs, 7.6 million couples registered marriages in 2021, compared to 8.1 million in 2020 and 9.3 million in 2019. As the country’s population ages and the working population slowly diminishes, there is a real threat to the country’s long-term productivity and social stability.

Japan Vs China

Japan faced similar problems in the past. When its asset bubble burst in 1992, it faced decades of slow growth. Japan’s population has also been following the same trend of aging and shrinking.

However, Japan has already developed many of the technologies needed to support its changing population. The government aims to become the first country to achieve economic growth with a shrinking population by becoming a super-aging, supersmart society. According to GlobalData estimates, Japan will have developed and deployed the technology stack needed to enable a supersmart society by 2030.

While it is likely China will follow Japan’s path of decades of slow growth post-pandemic, it is a long way from becoming a supersmart society in the same way. Unless it can turn this around and generate what it calls ‘high-quality growth’, China may not have the population or technology to support it into the future.

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