Demographics in China are highlighted in the first of four reports into the country’s 10-year economic outlook being published by Morningstar, and which set out to provide a broader picture of change in the world’s second biggest economy as well as the implications for investors.
The Next 10 Years: Demographics – Trend Reversals to Reduce Growth and Reshape the Economy is the title of the report in Morningstar’s latest China Economics Observer. Key points identified by Morningstar’s analysts include:
- Morningstar equity analysts expect births to drop 30% by 2026 as the population of women in their 20s falls by more than one third. Companies that sell infant formula and diapers will find the next 10 years to be demographically challenging.
- China’s population will age at a nearly unprecedented pace, with the senior population growing by 50 per cent, totaling 207 million by 2026, compared to 138 million in 2016. Healthcare companies that can get a toe-hold today are aligned with a once-in-a-generation demographic tailwind.
- China’s working-age population will contract by 23 million over the next 10 years, marking a significant reversal from breakneck growth of the past several decades and shifting the balance of power from employers to workers.
- China’s support ratio—the number of working-age adults for every child and senior—will fall from 2.7 to 2.3 by 2026. A collapsing support ratio will reduce China’s extremely high household savings rate, catalyzing consumption growth but draining the pool of funding that has supported the past few decades’ feverish pace of construction.
- Morningstar expects the country’s urban population to grow by about 100 million over the next 10 years, considerably less than the 209 million expansion of the past 10 years.
Despite the changes, the data cited by Morningstar’s report also illustrate that China will remain a significant economic force by sheer size of numbers. For example, despite a contraction in the working age population, having expanded by some 400 million over the past 30 years, the size of the labour force is predicted to be 979 million by 2026.
The government has recognised the challenge of falling birth rates and an ageing population along with a shift in the dependency ratio, but its policy response is described as coming too late. A liberalisation of the country’s strict family planning laws in the 1980s or 1990s might have averted the changes, the report’s authors suggest.
Subsequent reports will outline expectations around Growth & Productivity, Rebalancing and Debt.